Is there foreign exchange trading over the weekend?
By Chris Melendez

In order to have a better understanding of these fiascos, one has to have a little bit of history. Real exchange rates are set by banks and in the end determined by capital flows. Before the electronic age in fx, rates were set by banks using voice brokers. Banks also traded directly through one another via phone, and the Reuters dealing system. dealing would start in Auckland/Wellington on Sunday afternoon/Monday morning Wellington time. Australian banks would start early Monday too. Not every bank in the world had New Zealand or Australian branches. So on Friday afternoon, they would telex their orders to a friendly bank down under and have them watched until their Tokyo branch came in. Some banks wouldn't even consider the early Pacific region a viable center, and would send their orders directly to their Tokyo or Singapore branch.

So in New Zealand, the dealer would look at where his currency closed. Let's say dollar yen closed at 118.00. He would look at his orders which were at 117.90 to buy and 118.10 to sell. He would then punch into the phone line to his broker and say ninety-ten I deal. There would be the New Zealand open of dollar yen. 20 points wide. Then another bank would be a better buyer, and punch into the same broker and say ninety eight bid. Another bank might be a better seller and say, 03 I sell. Thus, 98-03 would be a reasonable dealing spread. This would be the same for the other major currencies. Scandinavian and some European currencies were not traded until at least Tokyo opened.

Sometimes, before the first price was made by the dealer, there might have been a geopolitical event that had happened over the weekend. It could be a comment, terrorist event, natural disaster, or even a revaluation/devaluation. Since we are on yen, let's say that for example, over the weekend, Tokyo had a horrific earthquake. This would obviously be bad for Japan, and the yen. The yen dealer at the bank would know this, and at the very least would not want to be selling dollars and buying yen. More accurately, he would raise his bids much higher in the market. An American dealer in Sydney was famous for this. He might have had a 120.40 stop loss for good amount, and trigger it. Other banks would have similar orders, and follow suit. That is how true 'gaps' happen.

In the early nineties EBS (or electronic broking system) was created by a consortium of 14 banks, and almost completely did away with voice brokers. It is the benchmark for establishing highs and lows in most currencies with the exception of cad, sterling, and sometimes aussie dollar. Banks relied more and more on the EBS, and a whole consolidation of the industry started to happen. Banks would close branches, and many, even go 24 hours.

This whole business of retail platforms filling their customers on stops before the real market opens is rubbish. These platform operators are making an absolute fortune doing it.

There used to be some trading on Saturday within the Arab world, and some bullion trading in between the houses in Hong Kong, but it was not recognized in the real world.

Prices are only as good as the people who input them. The market opens in Wellington in the morning. Anything in between New York close on Friday, and the Wellington open is not real. Anyone who wants to tell you different should go back to Macau, Vegas, or Atlantic City...

The Trading Sessions

There are actually five over-lapping trading sessions that trade 24 hours a day between Sunday evening and Friday evening. The New York exchange trades from 7:30 am to 5 pm EST. The Sydney, Auckland and Wellington exchanges trade from 3 pm to 11 pm EST. The Tokyo Exchange trades from 6pm to 11 pm, they stop to take a lunch break for an hour, then trade until 4 am EST. The Hong Kong and Singapore exchanges trade from 7 pm to 3 am EST. The last exchanges to trade are the Munich, Zurich, Paris, Frankfurt, Brussels, Amsterdam, and London exchanges, which trade from 2:30am to 11:30 am EST.