1.2 Operation

The 8 Major Currencies:

Whereas there are thousands of securities on the stock market, on the FOREX market most trading takes place in only a few currencies; the U.S. Dollar ($), European Currency Unit (€), Japanese Yen (¥), British Pound Sterling (£), Swiss Franc (Sf), Canadian Dollar (Can$), and to a lesser extent, the Australian and New Zealand Dollars. These major currencies are most often traded because they represent the countries with esteemed central banks, stable governments, and relatively low inflation rates.

Currencies are also always traded in pairs (i.e. USD/JPY or Dollar/Yen) on a floating exchange rate.

A 24 Hour Market:

The foreign exchange market operates 24 hours a day and has no official openings and closings like the stock market. It moves in response to geopolitical events or press releases from key central bank officials or reports on the economy from government statistical bureaus, among other factors. These fluctuations occur at any point throughout the day. When traders are inactive in one part of the world due to nightfall, there are traders elsewhere who are actively engaging in trades as it is daytime in that location.

The daily session "ends" at 5PM EST, but the market does not actually close. The Forex market only closes on Friday at 4PM for the weekend, and re-opens at 5 PM EST on Sunday. Each day, trading begins in Sydney, Australia, and progresses to the next major financial center (Tokyo, London, New York), as the business hours of that city's time zone begin.

Business Hours of Financial Centers:

Trading volumes are always higher for a region during their business hours as traders at financial institutions are busy filling and placing orders. The most active times, meaning the times of most liquidity and movement in the markets, is the London open (3 AM EST), and the overlap between London/Euro close and New York's open (8-11 AM EST).

The hours below correspond to someone living in the EST time zone.

• New York session opens at 8:00 am and ends around 5:00 pm.
• Sydney session starts at 5:00 pm and ends around 2:00 am.
• Tokyo session begins at 7:00 pm and ends around 4:00 am.
• Frankfurt session opens at 2:00 am and ends around 11:00 am.
  
• London opens at 3:00 am and ends around 12:00 am.

Below is a figure showing the same business hours for the various regions, also for someone in the EST time zone. In this figure you can see the overlap between the European/London session and the New York session, between 8 am and 11 am EST. The currency markets experience the highest volatility and volume during that overlap, which also coincides with the releases of important US economic releases.