In the forex market, how is the closing price of a currency pair determined?

By Investopedia Staff AAA
A:

The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, institutional investors and speculators. The forex is the largest market in the world and is considered a 24-hour market because currencies are traded around the world in various markets, providing traders with the constant ability to trade currencies. The forex opens at 5pm EST on Sunday and runs until 5pm EST on Friday, running 24 hours a day during this time. But between the Friday close and the Sunday open, the forex market does not trade.

The opening prices for the week are the initial trading prices on Sunday and the closing prices for the week are those of the last trade on Friday. However, over the course of the week, there really are no closing prices for the forex as there is at least one market open at some place in the world at all times.

However, we often hear quotes for the opening and closing prices for currency pairs in the financial media. For example, a news article might state how the U.S. dollar closed down against the Canadian dollar during trading on Wednesday. The price being quoted is the closing price for an individual market within the forex market. There are three main regions - North America, Asia and Europe - and within each there are several forex markets. In North America, the main market is in New York, in Asia it is in Tokyo and in Europe it is in London. There are many other individual markets within these regions that are part of the forex market, and each individual market has an open and close (i.e. does not trade 24 hours a day). The New York market, for example, trades from 8am EST until 3pm EST. In North American media, the closing price will often refer to the closing price of the New York forex market.

While these quotes give financial-media users a sense of the current market, the quotes are not as accurate as the actual current market price. For any forex trader, the best forex closing price to use is the closing price of his or her transaction.

For more information on the forex market, read Getting Started in Forex and A Primer on the Forex Market.

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