The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex is not done at one central location, but is conducted between participants by phone and electronic communication networks (ECNs) in various markets around the world.

The market is open 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday because currencies are in high demand. The international scope of currency trading means that there are always traders across the globe who are making and meeting demands for a particular currency.

[If you're interested in day trading in the forex market, Investopedia's Become a Day Trader course provides an excellent introduction to day trading to help you get started on the right foot.]

Currency is also needed around the world for international trade, by central banks and global businesses. Central banks have particularly relied on foreign-exchange markets since 1971 — when fixed-currency markets ceased to exist because the gold standard was dropped. Since that time, most international currencies have been "floated" rather than tied to the value of gold.

Economic and political instability and infinite other perpetual changes also affect the currency markets. Central banks seek to stabilize their country's currency by trading it on the open market and keeping a relative value compared to other world currencies. Businesses that operate in multiple countries seek to mitigate the risks of doing business in foreign markets and hedge currency risk.

Businesses enter into currency swaps to hedge risk which gives them the right, but not necessarily the obligation, to buy a set amount of a foreign currency for a set price in another currency at a date in the future. They are limiting their exposure to large fluctuations in currency valuations through this strategy.

The ability of the forex to trade over a 24-hour period is due in part to different international time zones and the fact trades are conducted over a network of computers, rather than any one physical exchange that closes at a particular time. For instance, when you hear that the U.S. dollar closed at a certain rate, it simply means that that was the rate at market close in New York. That is because currency continues to be traded around the world long after New York's close, unlike securities.

Securities such as domestic stocks, bonds and commodities are not as relevant or in need on the international stage and thus are not required to trade beyond the standard business day in the issuer's home country. The demand for trade in these markets is not high enough to justify opening 24 hours a day due to the focus on the domestic market, meaning that it is likely that few shares would be traded at 3 a.m. in the U.S.

The forex market can be split into three main regions: Australasia, Europe and North America, with several major financial centers within each of these main areas. For example, Europe is comprised of major financial centers such as London, Paris, Frankfurt and Zurich. Banks, institutions and dealers all conduct forex trading for themselves and their clients in each of these markets.

Each day of forex trading starts with the opening of the Australasia area, followed by Europe and then North America. As one region's markets close another opens, or has already opened, and continues to trade in the forex market. These markets will often overlap for a few hours, providing some of the most active period of forex trading. So for example, if a forex trader in Australia wakes up at 3 a.m. and wants to trade currency, they will be unable to do so through forex dealers located in Australasia, but they can make as many trades as they want through European or North American dealers.

The Bottom Line

Currency is a global necessity for central banks, international trade and global businesses, and therefore requires a 24-hour market to satisfy the need for transactions across various time zones. In sum, it's safe to assume that there is no point during the trading week that a participant in the forex market will not potentially make a currency trade.

(For further reading, see Getting Started in Forex.)

  1. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  2. How do you make money trading money?

    Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will ... Read Answer >>
  3. Where is the central location of the forex market?

    There is no central location of the foreign exchange market, often referred to as the forex (FX) market. Transactions in ... Read Answer >>
  4. How is spread calculated when trading in the forex market?

    First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
  5. How is the value of a pip determined?

    Learn how the pip is used in the pricing of a currency pair in forex trading, and see how the foreign exchange market is ... Read Answer >>
Related Articles
  1. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  2. Trading

    The Pros & Cons Of A Forex Trading Career

    Trading foreign currencies can be lucrative, but there are many risks. Investopedia explores the pros and cons of forex trading as a career choice.
  3. Trading

    Forex or Stock Trading: Which Works For You?

    Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
  4. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
  5. Trading

    The 6 Most-Traded Currencies And Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  6. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
  7. Trading

    Should You Trade Forex Or Stocks?

    Deciding which markets to trade can be complicated, and many factors need to be considered in order to make the best choice.
  1. Foreign Exchange Market

    The market in which participants are able to buy, sell, exchange ...
  2. Forex Market

    The forex market is the market in which participants including ...
  3. International Currency Markets

    The market in which participants from around the world are able ...
  4. Online Currency Exchange

    An online system for exchanging one country's currency for another. ...
  5. Forex Option Trading

    A security that allows currency traders to realize gains without ...
  6. Currency Trading Software

    Trading software to help the currency trader with forex trading ...
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center