Global currencies, in the forex market, are traded at any time of the day. The forex market is known as being very liquid, and the increased availability of advanced technology and information processing has only boosted the number of participants and the trade volume.
Even though markets in a lot of foreign countries are closed when North American markets are open, trading on foreign currencies still happens. As the majority of trading on a specific currency occurs when its main market is open, many other banks globally hold foreign currencies allowing them to trade as the main market closes. For instance, the North American markets are open when the Japanese markets are close. However, North American traders can still purchase and sell Japanese yen through their brokerages and banks. But the Japanese yen becomes more liquid if the Japanese market if open.
Several investors do not recommend trading when a currency’s market is closed. During a market’s close, a variety of trading positions closes too. And this could start volatility in the currency markets and cause prices to move erratically. But the same can be the case when markets open. Here, traders are opening positions, perhaps because they don’t wish to hold them over the weekend. Also, holding trades during a weekend is not recommended unless the method used as a forex trader is to pursue a long-term strategy, which incorporates holding trades for weeks or months.
Trading in Weekends
Meanwhile, the U.S. forex market finishes on Friday at 5 pm EST and opens on Sunday at 5 pm EST. While the market is only closed to retail traders, forex trading takes place during the weekend through central banks and other organizations. Thus, there is typically a difference in price between Friday’s close and Sunday’s opening. And this difference is known as a gap.
Aside from that, traders who do not wish to expose their position to the risk of gapping would close their position Friday evening or place stops and limits to control the risk.
In specific countries, where market tension exists, a bank could go bust in the space of a weekend. And this indicates that the position will change dramatically by the time the market opens once again on Sunday.
Some currencies have meager rates of demand for exchange purposes. With that, these currencies might be challenging to trade and can often be traded in specific banks only.
Then, because currency trading does not occur on a regulated exchange, there is no assurance that there will be someone who would match the trade specifications. Nevertheless, the major currencies of the world, like the American dollar, the euro, and the Japanese yen, are the most widely available.