How Is the Closing Price of a Currency Pair Determined in the Forex Market?

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.

Key Takeaways

  • The foreign exchange market, or forex, is seen as a 24-hour market, due to the fact that financial instruments are traded somewhere in the world at any time.
  • Currencies trade on the forex, and while media sources may list opening and closing prices for select currency pairs, there isn't really a fixed open or close.
  • The numbers that are quoted as being the closing price of a currency pair are really where that pair closed in the particular market or geographic area that is being referenced. 

Understanding the Forex Market

The retail forex opens at 5 p.m. EST on Sunday and runs until 5 p.m. 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 someplace in the world at all times.

Yet, 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.

How the Forex Market Works

There are four regions—New Zealand/Australia, Asia, Europe, and North America—and within each, there are several forex markets. In North America, the main market is in New York; in Asia, it is in Tokyo; in Europe, it is in London; and in New Zealand/Australia it is in Syndey.

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 (in other words, it does not trade 24 hours a day). The New York market, for example, trades from 8 a.m. EST until 5 p.m. 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 their transaction.

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