Foreign Exchange Markets: 24-Hour Trading
The foreign exchange (forex) market is open and active 24 hours a day from Monday morning in New Zealand through Friday night in New York. At any given moment, currency trading desks in dozens of global financial centers are open and active in the market.
Currency trading doesn’t even stop for holidays when other financial markets, like stocks or futures exchanges, may be closed. Even though it’s a holiday in Japan, for example, Sydney, Singapore, and Hong Kong may still be open. About the only holiday in common around the world is New Year’s Day, and even that depends on what day of the week it falls on.
There is no officially designated starting time to the trading day or week, but for all intents the market action kicks off when Wellington, New Zealand, the first financial center west of the International Dateline, opens on Monday morning local time. Depending on whether daylight saving time is in effect, it roughly corresponds to early Sunday afternoon in the Americas, Sunday evening in Europe, and very early Monday morning in Asia.
The Sunday open represents the starting point when currency markets resume trading after the Friday close of trading in North America (5 p.m. Eastern time). This is the first chance for the forex market to react to news and events that may have happened over the weekend. Prices may have closed New York trading at one level, but depending on the circumstances, they may start trading at different levels at the Sunday open. The risk that currency prices open at different levels on Sunday versus their close on Friday is referred to as the weekend gap risk or the Sunday open gap risk. A gap is a change in price levels where no prices are tradable in between.
As a strategic trading consideration, individual traders need to be aware of the weekend gap risk and know what events are scheduled over the weekend. There’s no fixed set of potential events, and there’s never any way of ruling out what may transpire, such as a terror attack, a geopolitical conflict, or a natural disaster. You just need to be aware that the risk exists and factor it into your trading strategy.
On most Sunday opens, prices generally pick up where they left off on Friday afternoon. The opening price spreads will be much wider than normal because only Wellington and 24-hour trading desks are active at the time. When banks in Sydney, Australia, and other early Asian centers enter the market over the next few hours, liquidity begins to improve and price spreads begin to narrow to more normal levels.
Because of the wider price spreads in the initial hours of the Sunday open, most online trading platforms don’t begin trading until 5 p.m. ET on Sundays, when sufficient liquidity enables the platforms to offer their normal price quotes. Make sure you know your broker’s trading policies with regard to the Sunday open, especially in terms of order executions.