Longer trading hours aim to boost foreign access, reduce reliance on offshore pricing, but questions remain over overnight liquidity
South Korea’s dollar-won spot market will transition to near-24-hour trading starting Monday, marking a significant step toward liberalizing one of Asia’s most tightly controlled currency markets.
The reform is designed to enhance foreign investor access to onshore won trading and diminish dependence on offshore pricing mechanisms. However, it also raises critical questions about whether domestic markets possess sufficient overnight liquidity to absorb global volatility without disruption.
The changes bring both opportunities and potential risks for Korea’s financial system.
Key Details of the New Trading Structure
Dollar-won trading will operate on a near-24-hour cycle beginning Monday. During U.S. daylight saving periods, sessions will run from 6 a.m. Monday to 6 a.m. Saturday in Seoul time. Outside daylight saving periods, hours shift to 7 a.m. Monday through 7 a.m. Saturday.
The market remains closed on weekends and during New Year’s Day, though trading continues on domestic holidays with settlements processed on scheduled banking days.
Cross-currency trading involving the won and other major currencies will maintain existing hours of 9 a.m. to 3:30 p.m. KST.
The current 3:30 p.m. benchmark reference rate and market average will persist temporarily, though authorities intend to gradually adopt time-weighted methodologies that better reflect the extended trading window.
Driving Foreign Investment Access
This initiative addresses a persistent weakness in Korea’s efforts to align with developed-market standards. Following reforms introduced in July 2024—which extended trading until 2 a.m. the following day and permitted registered foreign financial institutions direct onshore participation—the latest expansion aims to further integrate the won into global markets.
Despite progress, foreign investors continue relying heavily on the offshore non-deliverable forward (NDF) market for won exposure management after domestic sessions end. Industry data shows NDF transactions still represent approximately 80 percent of total won forward activity, markedly higher than the global average of 21 percent.
MSCI’s recent decision to maintain Korea on its standard market index—not elevate it to developed-market status—reflects ongoing challenges, particularly the won’s limited offshore convertibility and insufficient onshore liquidity during extended hours.
Market Benefits and Volatility Concerns
Continuous trading enables smoother price discovery, reducing the risk of sudden overnight adjustments when markets reopen. Since Korea’s 2024 hour extension, average daily spot trading volume has risen 45 percent compared to the prior five-year baseline, according to the Korea Capital Market Institute.
Kang Hyun-joo, a senior researcher at KCMI, notes that extended hours have substantially reduced “gap risk” by allowing overnight information to be priced in more steadily.
Companies can also improve currency risk management through more consistent pricing, enabling exporters and importers to implement hedging strategies without facing extreme volatility at morning open, according to Hanwha Investment & Securities.
Economic Outlook Remains Uncertain
While trading mechanics evolve, fundamental drivers of the won remain unchanged. KB Securities analyst Oh Jae-young forecasts potential depreciation from current levels near 1,530 per dollar through the second half of 2026 if the U.S. dollar strengthens broadly and Korea’s external imbalance worsens.
The primary concern moving forward is scale of potential foreign capital outflows from Korean equities. Analysts emphasize that overnight periods may experience heightened volatility due to thinner liquidity, not the trading extension itself.
“Macro shocks intersecting with thin overnight liquidity—a structural feature—can amplify perceived volatility,” explained Choi Gyu-ho, an analyst at Hanwha Investment & Securities.
Authorities have signaled readiness to intervene if necessary. Second Vice Finance Minister Huh Chang stated Thursday that the government stands prepared to deploy immediate stabilization measures should the exchange rate diverge significantly from fundamentals or experience sharp unidirectional moves.
