Forex Market Hours - Truly a 24-Hour Market!

   Categories: FX Basics  

Article provided by The Federal Reserve Bank of New York

During the past quarter century, the concept of a twenty-four hour market has become a reality. Somewhere on the planet, financial centers are open for business, and banks and other institutions are trading the dollar and other currencies, every hour of the day and night, aside from possible minor gaps on weekends. In financial centers around the world, business hours overlap; as some centers close, others open and begin to trade. The foreign exchange market follows the sun around the earth.

The international date line is located in the western Pacific, and each business day arrives first in the Asia-Pacific financial centers— first Wellington, New Zealand, then Sydney, Australia, followed by Tokyo, Hong Kong, and Singapore. A few hours later, while markets remain active in those Asian centers, trading begins in Bahrain and elsewhere in the Middle East. Later still, when it is late in the business day in Tokyo, markets in Europe open for business. Subsequently, when it is early afternoon in Europe, trading in New York and other U.S. centers starts. Finally, completing the circle, when it is mid or late afternoon in the United States, the next day has arrived in the Asia-Pacific area, the first markets there have opened, and the process begins again.

The twenty-four hour market means that exchange rates and market conditions can change at any time in response to developments that can take place at any time. It also means that traders and other market participants must be alert to the possibility that a sharp move in an exchange rate can occur during an off hour, elsewhere in the world.The large dealing institutions have adapted to these conditions, and have introduced various arrangements for monitoring markets and trading on a twenty-four hour basis. Some keep their New York or other trading desks open twenty-four hours a day, others pass the torch from one office to the next, and still others follow different approaches.

However, foreign exchange activity does not flow evenly. Over the course of a day, there is a cycle characterized by periods of very heavy activity and other periods of relatively light activity.Most of the trading takes place when the largest number of potential counterparties is available or accessible on a global basis. Market liquidity is of great importance to participants. Sellers want to sell when they have access to the maximum number of potential buyers, and buyers want to buy when they have access to the maximum number of potential sellers.

Business is heavy when both the U.S. markets and the major European markets are open—that is,when it is morning in New York and afternoon in London. In the New York market, nearly two thirds of the day’s activity typically takes place in the morning hours. Activity normally becomes very slow in New York in the mid to late afternoon, after European markets have closed and before the Tokyo, Hong Kong, and Singapore markets have opened.

Given this uneven flow of business around the clock, market participants often will respond less aggressively to an exchange rate development that occurs at a relatively inactive time of day, and will wait to see whether the development is confirmed when the major markets open. Some institutions pay little attention to developments in less active markets. Nonetheless, the twenty-four hour market does provide a continuous “real-time” market assessment of the ebb and flow of influences and attitudes with respect to the traded currencies, and an opportunity for a quick judgment of unexpected events. With many traders carrying pocket monitors, it has become relatively easy to stay in touch with market developments at all times—indeed, too easy, some harassed traders might say. The foreign exchange market provides a kind of never-ending beauty contest or horse race, where market participants can continuously adjust their bets to reflect their changing views.