In the forex market, global currencies are traded at all times of the day. The forex market is very liquid, and the increased availability of advanced technology and information processing has only increased the number of participants and the volume of trades.
- Currencies trade 24 hours a day in the forex market, meaning that you can often place an FX trade at any time.
- This is achieved as trading transitions from one major market in a certain time zone to another as the day progresses (e.g., from London to New York to Sydney to Tokyo).
- Retail traders often are limited to trading Monday through Friday, however.
- Because markets can move at any hour, many forex day traders prefer not to hold positions overnight.
Although markets in many foreign countries are closed when North American markets are open, trading on foreign currencies still takes place. While the majority of trading on a particular currency occurs when its main market is open, many other banks around the world hold foreign currencies enabling them to be traded at times when the main market is closed.
For example, the North American markets are open when the Japanese markets are closed, but North American traders are still able to buy and sell Japanese yen through their brokerages and banks. However, the market for the Japanese yen is more liquid at times when the Japanese market is open.
Market hours around the world will overlap, but it is usually the case that primary markets at a particular period of time will be:
- New York: 8 a.m. to 5 p.m. (EST)
- Tokyo: 7 p.m. to 4 a.m. (EST)
- Sydney: 3 p.m. to 12 a.m. (EST)
- London: 3 a.m. to 11 a.m. (EST}
Drawbacks to Trading When a Currency's Market Is Closed
Some investors would not recommend trading when a currency's market is closed. At market close, a number of trading positions are being closed, which can create volatility in the currency markets and cause prices to move erratically. The same can be the case when markets open. At this time, traders are opening positions perhaps because they don't want to hold them over the weekend.
Holding trades over a weekend is not recommended unless your method as a forex trader is to follow a long-term strategy, which incorporates holding trades for weeks or months.
The U.S. forex market closes on Friday at 5 pm EST and opens on Sunday at 5 pm EST. Although the market is only closed to retail traders, forex trading takes place over the weekend through central banks and other organizations. Therefore, there is often a difference in price between Friday's close and Sunday's opening. This difference is known as a gap.
Traders who do not want to expose their position to the risk of gapping will close their position on Friday evening or place stops and limits to manage this risk.
In certain countries where there is market tension, a bank could go bust in the space of a weekend. This could mean that your position will change dramatically by the time the market opens again on Sunday.
Certain currencies have very low rates of demand for exchange purposes. As a result, these currencies can be difficult to trade and can usually only be traded in specific banks. Because currency trading does not take place on a regulated exchange, there is no assurance that there will be someone who will match the specifications of your trade.
However, the major currencies of the world, such as the American dollar (USD), the euro (EUR), and the Japanese yen (JPY), are among the most widely available.