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The Basics of 24-hour Trading

 

Unsurprisingly, given the very nature of the foreign exchange market, there is very little downtime when it comes to trading. The different time zones are one factor in this, with some countries having up to a full day’s difference between the time zones of the countries with whom they are trading. It is also a market which never sleeps no matter what your time zone there are no holidays, no breaks and barely any downtime, since if there is somewhere in the world where the trading desks are open, then there are deals to be made.

Where does it all begin?

Although there isn’t really a time when the foreign exchange markets open from an official standpoint, it is generally considered that the opening of the desks in Wellington, New Zealand starts the week. Because it is the first financial centre west of the International Date Line, Monday morning in Wellington is used as a reference point, which translates to Sunday evening in most of Europe, Sunday afternoon in the Americas and Monday morning in most parts of Asia. Because the markets may change fairly dramatically over the weekend, prices may close at one level and then open at another, which can be due to either scheduled or unscheduled events taking place over the intervening period. This is called the ‘gap risk’ or the ‘Sunday open gap risk’ and is one of the major considerations that traders have to take into account when trading begins again. Traders try to anticipate the level of risk based on known factors, but there are often circumstances which will affect forex trading that cannot be predicted such as natural disasters, terrorist attacks, geopolitical unrest or other potential sources of upheaval which must be factored into any risk assessments.

Monday morning fluctuations

Often when the markets open on Monday morning in Wellington, there is an unusually wide spread even when most of the prices have held fairly steady since the Friday closing. This gradually reverts back to normal as more of the global forex markets open and trading picks up to regular levels, beginning with the opening of the rest of the Australasian and Asian markets. By the time the rest of the world is active, liquidity has normally improved and the price spreads have returned to levels within the normal range. Some brokers have different policies on when they actually begin trading again on a Sunday or Monday due to these fluctuations, as pricing can be affected in the short term.

 

 

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