Forex Exchange: the market that never sleeps

Have you ever stopped to think about what happens when you exchange currency during a trip? This simple transaction that millions of people make every year is just the tip of the iceberg of a much larger universe: the forex market (or FX, as it is known internationally).

Currency exchange beyond tourism

Just imagine: Bill is leaving Taiwan heading to the US. At the airport, he looks for a currency exchange office and converts his local currency (NTD) to US dollars (USD). The rate that day is 0.034, so his 10,000 NTD become 3,400 USD. That’s it, right? Well, at this seemingly mundane moment, Bill has become a participant in the forex market.

But here comes the plot twist: these tourist currency exchanges represent only a tiny fraction of what actually happens in the global foreign exchange market. The vast majority of currency transactions have nothing to do with travel or international trade.

Speculators vs. the real economy

The foreign exchange market is essentially a decentralized space where currencies constantly circulate among participants. Meanwhile, traders and currency speculators buy foreign exchange with the hope of reselling it at a higher price in the future. It is this speculative activity that truly moves the market.

To get a sense of the size of this: the New York Stock Exchange (NYSE) moves approximately US$ 200 billion per day. Now compare that to forex: US$ 6.6 trillion in daily trading volume (data from the Bank for International Settlements 2019). The difference is absolutely astronomical.

But hold on, not all of this volume belongs to traders like you and me. The spot market (that which is relevant to most operators) handles about US$ 2 trillion per day. And the retail segment, where individual people trade, accounts for only 3% to 5% of that total – roughly US$ 200 to 300 billion daily, possibly less.

A market that never sleeps

The biggest difference between forex and other financial markets is simple: it never closes. While stock exchanges and bond markets sleep, forex remains open 24 hours a day, 5 days a week.

How? Trading simply shifts between different financial hubs around the globe. When you wake up in Auckland or Wellington, the session begins. Then it flows to Sydney, Singapore, Hong Kong, Tokyo. It continues in Frankfurt, passes through London, and ends in New York. Then it all starts over in New Zealand. It’s a continuous cycle that spans the globe.

This feature makes forex a truly global market, where exchange rates change every second and opportunities arise 24/7. Unlike traditional markets that sleep at the end of the day, the currency market simply knows no pause.