The foreign exchange market, also known as the forex market, is the largest financial market in the world. It operates 24 hours a day, five days a week, with trading sessions starting in Sydney, then moving to Tokyo, London, and finally New York. But what happens when the forex market closes? In this article, we will explore the various aspects of the forex market closing and its impact on traders.
Forex Market Closing Times
While the forex market operates 24 hours a day, trading is not always active during this entire period. Each trading session has its own opening and closing times, and traders need to be aware of these times to effectively manage their trades.
The Sydney session opens at 10:00 PM GMT on Sunday and closes at 7:00 AM GMT on Monday. The Tokyo session opens at 12:00 AM GMT and closes at 9:00 AM GMT. The London session opens at 8:00 AM GMT and closes at 5:00 PM GMT. Finally, the New York session opens at 1:00 PM GMT and closes at 10:00 PM GMT. These times are subject to change due to daylight saving time, holidays, and other factors.
What Happens When the Forex Market Closes?
When the forex market closes, trading activity stops until the next trading session opens. This means that traders cannot open or close positions, nor can they modify existing positions. However, there are several things that happen when the forex market closes, which can affect traders in different ways.
1. Market Orders vs. Limit Orders
When traders place a market order, they are requesting to buy or sell a currency at the current market price. This means that if the market is closed, the order will not be executed until the next trading session opens. On the other hand, limit orders are executed at a specified price level. If the market is closed, the limit order will remain pending until the next trading session opens.
2. Price Gap Risk
One of the most significant risks associated with the forex market closing is the potential for price gaps. A price gap occurs when the market opens at a significantly different price level than where it closed. This can happen due to various factors, such as news releases, political events, or market sentiment.
Price gaps can cause significant losses for traders who have open positions, especially if the gap is against their position. To mitigate this risk, traders can use stop-loss orders to automatically close their positions if the market moves against them.
3. Overnight Swaps
When a trader holds a position overnight, they may be subject to an overnight swap fee or credit. This is because forex trading involves borrowing one currency to buy another, and the interest rates associated with these currencies can differ. When the forex market closes, the overnight swaps for open positions are calculated and credited or debited to the trader’s account.
4. Weekend Risk
The forex market is closed on weekends, which means that traders cannot open or close positions during this time. However, weekend risk refers to the potential for significant market moves over the weekend due to news releases or other events. If traders have open positions over the weekend, they may be exposed to this risk, which can result in significant losses.
Conclusion
In conclusion, the forex market closing has several implications for traders. When the market is closed, traders cannot open or close positions, and orders may be subject to price gaps when the market opens. Traders can mitigate this risk by using limit orders and stop-loss orders. Additionally, traders holding positions overnight may be subject to overnight swaps, and weekend risk can pose a significant threat to open positions. It is essential for traders to be aware of these factors and to manage their positions accordingly to minimize their risk exposure.
