120-Won Exchange Rate Swings Possible Ahead of 24-Hour Forex Market Launch

Starting the 6th, the domestic foreign exchange market will effectively transition to a 24-hour trading system, excluding weekends and holidays. While the Seoul foreign exchange market extended its trading hours to 2 a.m. the following day last July, this latest shift further expands trading times.

Hanwha Investment & Securities analyzed that the Won-Dollar exchange rate could see fluctuations of around 120 won within a quarter due to the 24-hour market opening. The quarterly fluctuation range had already increased by 39.3% when trading hours were extended last July. Choi Gyu-ho, a researcher at Hanwha Investment & Securities, explained that a further 20% increase alone could lead to a 120-won range.

The extension of trading hours helped mitigate the phenomenon of overnight overseas news being reflected all at once at the next day's opening. It somewhat eased sharp exchange rate movements; the trend of overseas news occurring while the Seoul foreign exchange market was closed being bundled into the next day's opening has decreased. Hanwha Investment & Securities analyzed that bid-ask volatility, where the exchange rate sharply rises or falls immediately after opening, was reduced by 41.6% following the trading hour extension.

However, an environment is being created where the won's price reacts in real-time to global news, potentially leading to increased volatility pressure. Particularly, the late-night hours, after the London market closes and only the New York market is open, have thin liquidity, with overnight trading volume accounting for only 7-14% of daytime volume. This poses a risk of the exchange rate moving excessively on even minor news. Overnight spot trading volume increased by 135% as of May 2025 compared to July 2024. The report likened this situation to 'wider drains but lower breakwaters.'

Increased exchange rate volatility can impact settlement gains and losses for import/export companies and lead to actual cost burdens for small and medium-sized enterprises lacking personnel and hedging tools to respond to overnight fluctuations. Furthermore, U.S. stock investors are also not free from the risk of currency losses due to sharp exchange rate movements.

Researcher Choi added that it is reasonable to proceed with system improvements, accepting volatility, considering the requirements for inclusion in advanced country indices for global stock markets. While this transition to a 24-hour trading system may increase short-term exchange rate volatility, it will contribute to market efficiency in the long run. It is time for companies and investors to review their risk management strategies in preparation for these changes.