The foreign exchange (forex) market is the largest and most liquid financial market in the world, with a daily turnover of over $5 trillion. It operates 24 hours a day, five days a week, from Monday morning in Asia to Friday evening in the Americas. However, there are times when the forex market closes, and these closures can have significant implications for traders and investors.
Forex market hours
Before we explore what happens when the forex market closes, let us first understand its regular trading hours. The forex market is open 24 hours a day, from 5 pm EST on Sunday to 5 pm EST on Friday. However, this does not mean that it is active throughout the day. The forex market is divided into four major trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session.
The Sydney session starts at 5 pm EST on Sunday and ends at 2 am EST on Monday. The Tokyo session then takes over and lasts from 7 pm EST to 4 am EST. The London session opens at 3 am EST and closes at 12 pm EST, while the New York session runs from 8 am EST to 5 pm EST. These sessions overlap, creating the most active and volatile trading periods for the forex market.
What happens when the forex market closes?
When the forex market closes, it means that no new trades can be executed until it reopens. However, existing trades can still be managed, closed, or adjusted. The forex market closes for two main reasons: the weekend and holidays.
Weekend closures
The forex market closes on weekends because banks, businesses, and government offices are closed, and there is no need for currency exchange. However, some forex brokers offer weekend trading on select currency pairs, but the liquidity and volatility during these periods are low, and the spreads are wide.
Holiday closures
The forex market also closes on national holidays, such as Christmas, New Year’s Day, and Easter. These closures vary depending on the country and the exchange being traded. For instance, the New York Stock Exchange (NYSE) closes for nine holidays, while the London Stock Exchange (LSE) closes for eight.
Impact on traders and investors
The closure of the forex market can have different effects on traders and investors, depending on their positions, strategies, and objectives. Here are some of the implications:
1. No new trades can be executed: Traders who rely on short-term trading strategies, such as scalping or day trading, may be affected by the forex market closure. They cannot open new positions or take advantage of sudden price movements that may occur outside trading hours.
2. Existing trades can be affected: The forex market closure can also impact existing trades that are left open overnight or over the weekend. Factors such as news events, political developments, or market sentiment can influence the price of the currency pairs, causing them to gap up or down when the market reopens. This can result in significant profits or losses, depending on the direction of the gap and the trader’s position.
3. Limited liquidity and volatility: During holiday periods or weekends, the forex market may experience low liquidity and volatility, which can affect the spreads, slippage, and order execution. Traders who rely on high-frequency trading or require tight spreads may find it challenging to get favorable trading conditions.
4. Opportunity for reflection and analysis: On the other hand, the forex market closure can be an opportunity for traders and investors to reflect on their trading performance, analyze their strategies, and plan for the next trading week. They can review their trading journals, update their trading plan, or attend webinars and seminars to improve their skills and knowledge.
Conclusion
In conclusion, the forex market is a 24/5 market that operates across different time zones and sessions. However, it closes on weekends and holidays, limiting the opportunities for traders to execute new trades and exposing them to potential gaps and slippage. The forex market closure can also affect existing trades, liquidity, and volatility, but it can also provide a chance for reflection and analysis. As such, traders and investors should be aware of the forex market hours and plan their trading activities accordingly.
