Forex accrues its edge as the largest and most competitive marketplace because it is a 24-hour marketplace. As soon as the market opens Sunday at 5 pm EST, it remains open throughout the week without shutting down any day until Friday at 5 pm EST.
Between the market open on Sunday and the close on Friday, traders worldwide are allowed to place trades as they wish at any time of day. Unknown to most people is that there exist three main trading sessions within the vast $6 trillion marketplaces.
- Asia Trading Session
- Europe Trading Session
- North America Trading Session
The Asia trading session is usually the first trading session on any given day. The primary market, in this case, is in Tokyo, dominated by the Japanese yen as it is one of the major currencies. The Tokyo trading session starts at 00:00 GMT and ends at 09:00 GMT.
The London session dominates the Europe session as a hub of trading activity within the vast European Union block. During the European session, the British pound and the euro account for most trading activities. The session starts at 08:00 GMT and ends at 17:00 GMT.
Similarly, whenever the European and Asian Sessions are opened, traders experience increased liquidity in the market, given the increased number of play participants. Currency pairs of EUR/JPY, GBP/USD, EUR/USD, and GBP/JPY experience the highest amount of trading volatility.
The North America session is the most active trading session in the vast Forex market. This is partly because it is home to financial hubs in the form of New York and Chicago. When the New York and the London sessions are open and running concurrently, it is the best time to pursue opportunities. The New York session starts at 13:00 GMT and ends at 22:00 GMT.
During this time, the amount of liquidity and volatility is usually high. Likewise, it becomes pretty easy to enter and exit trades at preferred price points.
Opening and closing prices in the forex
Likewise, whenever we hear the opening and closing prices in forex, it implies the price at which a currency pair started trading in a given trading session, be it Asia, Europe, or North America, and the price at which it closed as the session came to a close.
Likewise, whenever the USD/JPY opening price is quoted as 106.56, it could imply the price at which the pair started trading as the Tokyo session came online at 00:00 GMT. Likewise, if it closed at 106:89, the same would imply the closing price as the Tokyo session came to a halt at 09:00 GMT.
Similarly, the opening and closing prices quoted in news briefs indicate the opening and closing price of a currency pair concerning a given trading session, be it New York, Tokyo, or London. Given the market’s nature, there is usually no single price for opening and closing prices for the three markets.
The opening and closing prices in the Forex market give traders a sense of how currency pairs behaved during a given session. The information is usually used to predict how the currency is likely to behave heading into a new trading session.
Importance of closing price
Given that the day has 24 hours, the price at which a currency pair closes at the end of the business is one of the most-watched in the $6 trillion marketplaces. The price is often used as a marker of currency pair when looking to predict how the pair is likely to behave the next day.
A given day’s closing price is normally compared with the previous day’s closing price to ascertain whether a currency pair is trending upwards, lower or range-bound. In case the price closes higher than the previous day, the same could imply that the price is trending upward. Likewise, if the closing price closed lower than the previous day, the same could imply the pair is edging lower.
Closing prices also act as ideal price points for placing profit orders and stop-loss orders. For instance, if a given currency pair is trending higher, a trader could open a long position looking to profit as the price continues to edge higher.
The stop loss for the day will be placed at the previous day’s closing price to shield against any downward pressure resulting in price tanking significantly. Similarly, a profit take order could be placed at the previous day’s closing price if it closed much higher.
Forex vs. the stock market
The forex and the stock market differ when it comes to opening and closing prices. The difference stems from the fact that the stock market is not a 24-hour marketplace.
Stock markets worldwide operate at specific times, opening at a given time and closing at a given time.
In the stock market, traders can only buy and sell shares of a company when the markets are opened. The fact that the stock market is not a 24-hour marketplace is one of the reasons it is less liquid than the forex market.
Similarly, a stock’s opening price is the one offered when a stock starts trading as soon as exchange such as the New York Stock Exchange is opened. The price of the first trade is the opening price in this case.
The closing price is the last price as soon as the market closes at the end of the day. In the US stock market, the closing price is the last trading price at 4:00 PM Eastern time. However, some markets offer after-hours trading, of which the closing price is usually the last price after the after-hours trading is closed.
Bottom line
By virtue of being a 24-hour marketplace, the forex market does not come with an official closing price, as is the case in the stock market. The closing price of currency pairs is when a currency pair is closed within a given session, be it London, New York, or Tokyo. However, it is usually not the official closing price, given that there will always be a market open at any given time.
The closing price of a currency in a given session is essential as it allows traders to understand how a currency pair behaves and how it is likely to act in the next session.