Currency trading continues on Ascension Day

On Ascension Day and almost every other holiday, currency trading continues 24 hours a day. Moreover, that trade involves much more money than you might think. Yet the currency world also has its quirks, such as the nightly 'witching hour'.

Huge amounts of money are circulated in the stock world. A company like Apple is worth about $2.500 billion. On the New York Stock Exchange, Nasdaq and all other American stock exchanges together, approximately € 10 billion worth of shares change hands on a trading day. However, that is child's play with what is happening in the currency world. There, €7.000 billion was traded on a random trading day last year. This is evident from figures from the Bank for International Settlements, which conducts a survey every three years. In 2019, that amount was €1.000 billion lower.

From Sunday evening to Saturday morning
Another difference between stock and currency trading is the trading hours. On Euronext Amsterdam, the bell is rung in the morning at exactly 9:00 am, while the balance of trade is drawn up in the afternoon at 17:30 pm. That is still quite a long period of time. For example, official trading on the New York Stock Exchange runs from 9:30 AM to 16:00 PM. On the other hand, there is also an unofficial evening session, which can continue until 20:00 in the evening. There is no such thing in the currency world. There, trading begins Monday morning local Sydney time each week. In the Netherlands it is still Sunday evening, while here it is already Saturday morning when the trading week in New York closes.

A trading day every weekday
Apart from New Year's Day and Christmas Day, every weekday is a trading day. Because if one or more trading platforms are closed due to a national or regional holiday, other exchanges can take over currency trading. Since currencies are traded on different exchange platforms, trading continues 24 hours a day. When the stock markets in Asia close, those in Europe are already open. The busiest time is during our afternoon when office hours in Europe and the United States – two very important blocs for the global economy and trade – overlap. There is very little trade when the sun is in the sky on a handful of islands in the South Pacific, while the rest of the world is just waking up, still sleeping, or has already finished the working day.

The 'Witch Hour'
However, a quiet trade is not always a boring trade. Because there are only a few large trading parties active, a large transaction or unexpected event can have serious consequences. Especially since automated trading programs that execute certain transactions based on market movements – also known as algorithms – can amplify price fluctuations. That happened, for example, in January 2016. In the hours between the close of the stock exchange in New York and the start of trading in Tokyo, the South African rand fell by 9% within minutes. And at the beginning of 2019, the Japanese yen shot up by 8%. Because of this kind of strange price movements, these quiet trading hours during our night are also called the 'witching hour' in the currency world. In terms of impact on the currency market, that sounds a lot more exciting than Ascension Day.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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