Navigating the foreign exchange (forex) markets is no small feat. With over 5 trillion dollars traded daily, the forex market offers tremendous potential for trading. One of its most appealing features is that it’s open 24 hours a day, allowing traders to access an enormous global marketplace from anywhere in the world at any time. However, with so many international and domestic players participating in an around-the-clock activity, there are many questions surrounding why this particular market remains active through all-night hours.
In this article, we’ll delve into why exactly the forex market operates 24/7 – including why volatility pairs are ideal for night trading – and how long these extended operating hours have been around.
What causes the forex market to be available 24/7?
The 24/7 availability of the foreign exchange (forex) market results from a complex network of international trading centres where traders and investors can access the market around the clock. While it may appear to be a single, unified marketplace, each centre provides unique trading hours and sessions when local participants are most active.
It creates an “overlap” period which occurs at different times depending on the locations involved, allowing for round-the-clock trading activity. The high liquidity and low costs associated with forex transactions and its short transaction times make it attractive for many traders and investors alike, thus perpetuating its 24/7 availability.
What are the benefits of trading forex at night?
Trading forex at night has many advantages. Firstly, due to the overlap in the markets of different countries, prices can become more volatile after hours when an extensive range of traders are active in the market. It may give investors significant opportunities to take advantage of price movements.
Additionally, this type of trading also offers more flexibility as it takes place around the clock and is not limited to regular business hours. Investors don’t have to work standard nine-to-five shifts to make large trades; instead, they can fit their trading schedule into their lifestyles.
Finally, the cost associated with trading after hours is often much lower due to competition from other brokerages that allow access overnight or during weekends. All these benefits make trading forex during the nighttime an attractive option for potential investors.
How long has the forex market been open?
The 24-hour availability of the forex market is a relatively modern phenomenon, having only been available since 1995. Before this, foreign exchange was only open during standard working hours, and it often took days or weeks for trades to settle.
However, with advances in technology and increased demand for access to the global marketplace, the availability of the forex market has expanded dramatically. Today, due to its 24/7 access and low transaction costs, foreign exchange trading is one of the most popular financial markets that allow investors to quickly and easily make lucrative trades.
What is the most active period in the forex market?
The most active period in the forex market is known as the London/New York session, which takes place from 8 am to 4 pm GMT. During this time, Saxo Bank reports an average daily trading volume of around $4 trillion, making it one of the busiest times for currency traders.
This window is also the perfect time for investors who want to take advantage of the increased liquidity and volatility of specific currency pairs. As such, it is often considered the ideal time to begin trading in the forex market.
Another period of increased activity in the forex market is during the Asian session, which takes place from 11 pm to 8 am GMT. During this time, there are usually fewer participants in the market and, consequently, lower liquidity and volatility. However, specific currency pairs often experience higher activity at this time due to more favourable exchange rates between European and Asian markets.
Are there risks associated with night trading in the forex market?
Yes, there are risks associated with night trading in the forex market. Firstly, due to its 24-hour availability, traders can easily fall into the trap of attempting to trade more often than they should. It can lead to an increased risk of overtrading and making ill-informed decisions that could result in losses.
Night trading can also be riskier due to a lack of liquidity. As fewer participants are in the market after hours, it can sometimes be challenging to enter and exit trades at desired prices; this is especially true when trading with higher leverage.
Finally, liquidity issues aside, traders should also be aware that specific currency pairs can become more volatile after hours. As such, it is crucial to be aware of the potential risks and use appropriate risk management strategies when trading during this time.
In conclusion
While night trading in the forex market has numerous advantages, there are also many associated risks that traders should consider before engaging in this activity. By understanding the risks and taking appropriate measures to mitigate them, investors can still make successful trades after hours. As such, night trading in the forex market is an attractive option for those looking to increase their chances of doing well.