[BODY]
Analysts say that if South Korea's foreign exchange market opens around the clock, the quarterly swing in the won-dollar exchange rate could widen from the current level of about 103 won to around 120 won.
Hanwha Investment & Securities disclosed this in its report "Restructuring of the Foreign Exchange Market Microstructure" released on the 1st.
According to the report, after trading hours were extended to 2 a.m. in July 2024, the average quarterly swing in the won-dollar rate reached 103.1 won, a 39.3% increase from the level before the extension (74.0 won). The report projected that when the 24-hour trading system takes effect on the 6th, even a further widening of just about 20% could stretch the quarterly exchange rate band to around 120 won. This means the gap between the high and low of the exchange rate within a single quarter could widen accordingly.
Choi Kyu-ho, a researcher at Hanwha Investment & Securities, said, "The extension of trading hours itself did not increase volatility, but shocks from macroeconomic indicators can affect the exchange rate during nighttime hours when liquidity is low, so perceived volatility may grow."
South Korea's foreign exchange market extended its trading close from 3:30 p.m. to 2 a.m. the following day starting in July 2024, and from the 6th it will shift to what is effectively a 24-hour trading system excluding weekends and holidays.
The expansion of trading hours has not brought only negative results. In the past, overseas news that occurred while the Seoul foreign exchange market was closed was often reflected all at once in the exchange rate the next morning. However, after trading hours were extended, gap volatility—which shows how much the exchange rate jumps right after opening—shrank by 41.6%.
Still, while morning opening shocks have diminished, the market has taken on a structure in which the won's price reacts in real time to every piece of global news, which poses a burden. In particular, during late-night hours when only the New York market is open after the London market closes, nighttime trading volume amounts to just 7–14% of daytime levels, so the exchange rate can move excessively even on minor news.
Greater exchange rate volatility can translate into cost burdens for companies and investors. Exporting and importing firms may see profits and losses vary depending on the timing of settlement, and small and mid-sized enterprises often lack the personnel and hedging tools to respond to nighttime volatility. U.S. stock investors are also not free from the risk of foreign exchange losses.
