Forex is one of the most lucrative financial markets in the world. Traders use it to speculate on the value of different currency pairs. It is many times the size of the stock market, which most non-trading people are familiar with. The foreign exchange market is not only larger than most, it’s also open 24 hours a day. From Sunday evening (UK time) through to Friday evening trades can take place.
So, why is the forex market so flexible? There are several reasons. The first is that it is not geographically based in one country. Instead, traders use financial currencies from around the world.
Let’s run through an example. When opening a forex trade, you could trade the Great British Pound (referred to as GBP) against the US Dollar (USD). You’d place your bet on whichever currency you think is going to perform better over a set time period. Since the UK and the USA are based in two different time zones, you’d have a very short window of opportunity to trade if one market was to close completely. So, to make it easier to trade various currencies, the forex market is open 24 hours a day. This runs from when the Australian marketplace opens to when the US marketplace closes. In the UK, the market opens at 8pm Sunday evening and closes at 10pm Friday night.
Economic and political events provide another reason for 24-hour trading. Throughout any given day, an event might take place that causes one currency to fluctuate upwards or downwards in value.
Usually these events are planned. Annual Gross Domestic Product (GDP) announcements or presentations from a country’s financial treasurer provide two examples. Bank of England chief Mark Carney and American economist Ben Bernanke have both influenced the FX markets. When economic announcements occur, they can cause massive swings in the value of one particular currency compared with others.
As a forex trader using an online platform, you would definitely want to keep an eye on when these planned events are going to take place. You would then speculate on how you think your currency of choice is going to behave against another. So, let’s say Mark Carney is scheduled to give a speech. In this circumstance, you’d want to forecast if the currency (GBP) is likely to increase or decrease in value.
If marketplaces throughout the world were closed half the time, traders would not be able to benefit from these swings in the marketplace.
The fact that you can now trade online is a final reason why forex is open all the time. The internet never closes, so why should the currency market? Physical locations are no longer a requirement for traders, giving them greater freedom to trade whenever they want to.