As the government closes non-essential businesses in the wake of the Coronavirus pandemic, people are wondering if the currency markets will close for those wanting to transfer money abroad.
It’s unlikely that the foreign exchange markets will close as currency is not traded on an exchange. It is traded between banks in what is known as an OTC product.
There are some on exchange currency products for speculation and Forex trading through futures brokers and options brokers traded on the CME for example. However, these are contracts based on the underlying currency prices with the cost of carry to the settlement date taken into effect. Whilst they are popular products, the majority of foreign exchange is traded off-exchange. Futures and options have their advantages because essential the exchange is guaranteeing the contracts in place between counterparties.
However, for international money transfers, the main risk is the banks stopping international payments, not the underlying ability to convert money from one to another. The USD remains one of the stronger currencies and FX rates are linked to underlying economies.
Here’s what OFX Senior Currency Strategist, Hamish Muress has to say about the likelihood of currency markets closing:
This is extremely unlikely because unlike equities that may be quoted on the NYSE the forex market is entirely decentralised.
There is no central market place that buying and selling takes place. The currency markets operate every week of the year from 9pm on a Sunday all the way until 10pm on a Friday. In essence they never shut and indeed when investors sit down at their desks in capital centres such as Tokyo or Hong Kong to start their weeks large swings can be seen.
This is because the market is digesting the news from over the weekend and with thinner liquidity bigger spikes are felt. At OFX though, we operate 24/7 for our clients going beyond the regular trading hours of the forex market.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.