Forex market is characterized by high liquidity and high flexibility and as such traders get
the freedom to make choices as per their wishes. They are not bound by the whims of the
markets.
So, when you try to determine the best time to trade the forex market this information
would prove very useful. Trades have almost always the same relative frequency and till
the forex market remains open, the probability of finding a trade whenever you look is
almost the same. This is all about volume of trade. It is determined by the number of
markets that are open and the number of times each of these markets overlap with each
other.
Keeping in mind the forex volume is extremely essential. It is generally seen that the
volume of transactions remains high all through the day but when does it peak? The
answer is when the Asian markets with Australia and New Zealand, the European
markets and the US markets open simultaneously. And this is the best time to trade the
forex market.
Market times
Let's have a look of the timings of some of these markets.
New York Market : 8 am – 4 pm EST
London Market : 2 am - 12 noon EST
Great Britain Market : 3 am – 11 am EST
Tokyo Market : 8 pm – 4 am EST
Australian Market : 7 pm – 3 pm EST
Just have a look at the above schedule carefully. What do you see? Yes, there are tow
times when two of the major markets overlap during the trading hours-between 2 am and
4 am EST (Asian/Europe) and between 8 am to 12 pm EST (European/N. American).
This is the time you have to target to make profits, the best time to trade the forex
markets.
Monday, February 23, 2009
The Best time to trade In Forex
The one thing marks a forex market is its dynamic nature. Here fortunes change in
seconds and minutes. If taken positively, this feature also allows a trader to enter the
market many times in a single day and garner some profit for himself.
Timing is one thing that would actually determine your success in the forex market and
that is why it is essential to find the best time to trade the forex market, the best time with
regards to activity, volume of trade etc.
There are some salient features of forex market and until and unless these are understood
one cannot find out the best time to trade the forex market.
24 Hour trading
Forex markets work 24 hours. It starts from Sunday 5 pm EST through Friday 4 pm EST
and rollovers at 5 pm EST. Forex trading starts from New Zealand and then is followed
by Australia, Asia, the Middle East, Europe and America. The most prominent forex
market is undoubtedly the US and the UK. They account for more than half of the total
market transactions.
If it comes to major forex markets, London, New York and Tokyo would win hands
down. Around 75% of market activities in the New York markets are witnessed in the
morning hours while the European markets are still open. And if you want to know when
the forex trading is the heaviest, well look for the time when the major markets overlap.
One thing must be evident from this discussion. There is never a cease down in the forex
market. When it is daytime for you, it is nighttime for someone else, and vice versa.
Markets close somewhere and simultaneously, markets open somewhere else. That is
what offers traders this tremendous opportunity to make some serious money.
seconds and minutes. If taken positively, this feature also allows a trader to enter the
market many times in a single day and garner some profit for himself.
Timing is one thing that would actually determine your success in the forex market and
that is why it is essential to find the best time to trade the forex market, the best time with
regards to activity, volume of trade etc.
There are some salient features of forex market and until and unless these are understood
one cannot find out the best time to trade the forex market.
24 Hour trading
Forex markets work 24 hours. It starts from Sunday 5 pm EST through Friday 4 pm EST
and rollovers at 5 pm EST. Forex trading starts from New Zealand and then is followed
by Australia, Asia, the Middle East, Europe and America. The most prominent forex
market is undoubtedly the US and the UK. They account for more than half of the total
market transactions.
If it comes to major forex markets, London, New York and Tokyo would win hands
down. Around 75% of market activities in the New York markets are witnessed in the
morning hours while the European markets are still open. And if you want to know when
the forex trading is the heaviest, well look for the time when the major markets overlap.
One thing must be evident from this discussion. There is never a cease down in the forex
market. When it is daytime for you, it is nighttime for someone else, and vice versa.
Markets close somewhere and simultaneously, markets open somewhere else. That is
what offers traders this tremendous opportunity to make some serious money.
Pips and Spreads In Forex
A pip is the smallest unit by which a Forex cross price quote changes. So, in Forex
trading, if EUR/USD bid is quoted at 0.9767 and it moves up Forex 2 pips, it will be
quoted at 0.9769.
The spread is the difference between the bid and asking price. You will note that while
trading the currency market, there will also be a difference between the current value of
the currency and what you pay for it. That is spread and that is where the forex brokers
make their profit. Remember, because of this profit the brokers can offer you a forex
account for free - without any fees!
Let's say the current EUR/USD price is 1.27237 and your forex broker has a Forex 2 pip
spread, then you will pay 1.2739 when you buy. You will also note that the Forex 2 pip
spread is usually available for major currency pairs like EUR/USD, USD/JPY, EUR/JPY
etc.
Look at another example of Forex 2 pip spread: the GBP/USD pair is quoted at 1.9346
Bid and 1.9348 Ask, meaning that it would cost you 1.9348 to buy this contract (at this
moment) but you would only get 1.9346 if you sold it (at the same moment). These
quotes change frequently, as trades are made and new price levels are established.
Sometimes the changes are only seconds apart.
In the above example there is a 2 Pip difference in the Bid and Ask price, representing a
Forex 2 Pip spread. The spread in this contract is likely to remain the same for a very
long time; the spread difference does not normally change for a given foreign exchange
market.
Spread is accepted as a cost of doing business in Forex market. When your entry
transaction is made you have already sustained a paper loss equal to the spread. If you are
a buyer, your contract must appreciate by 2 Pips (in our example above) before you break
even. This is how the market maker makes money from the transaction. However,
without such a dealer facilitating the trade, you would never be able to trade.
Forex 2 pip spread can be offered by those brokers who have huge monthly trading
volume in forex market and have established liquidity relationships with the world’s top
forex banks. With the banking relationships in place the company can have access to over
$1 billion in market liquidity. Consequently the company is able to pass along even
smaller spreads like Forex 2 pip to most active trading customers.
trading, if EUR/USD bid is quoted at 0.9767 and it moves up Forex 2 pips, it will be
quoted at 0.9769.
The spread is the difference between the bid and asking price. You will note that while
trading the currency market, there will also be a difference between the current value of
the currency and what you pay for it. That is spread and that is where the forex brokers
make their profit. Remember, because of this profit the brokers can offer you a forex
account for free - without any fees!
Let's say the current EUR/USD price is 1.27237 and your forex broker has a Forex 2 pip
spread, then you will pay 1.2739 when you buy. You will also note that the Forex 2 pip
spread is usually available for major currency pairs like EUR/USD, USD/JPY, EUR/JPY
etc.
Look at another example of Forex 2 pip spread: the GBP/USD pair is quoted at 1.9346
Bid and 1.9348 Ask, meaning that it would cost you 1.9348 to buy this contract (at this
moment) but you would only get 1.9346 if you sold it (at the same moment). These
quotes change frequently, as trades are made and new price levels are established.
Sometimes the changes are only seconds apart.
In the above example there is a 2 Pip difference in the Bid and Ask price, representing a
Forex 2 Pip spread. The spread in this contract is likely to remain the same for a very
long time; the spread difference does not normally change for a given foreign exchange
market.
Spread is accepted as a cost of doing business in Forex market. When your entry
transaction is made you have already sustained a paper loss equal to the spread. If you are
a buyer, your contract must appreciate by 2 Pips (in our example above) before you break
even. This is how the market maker makes money from the transaction. However,
without such a dealer facilitating the trade, you would never be able to trade.
Forex 2 pip spread can be offered by those brokers who have huge monthly trading
volume in forex market and have established liquidity relationships with the world’s top
forex banks. With the banking relationships in place the company can have access to over
$1 billion in market liquidity. Consequently the company is able to pass along even
smaller spreads like Forex 2 pip to most active trading customers.
The Major Pairs and Principles of Trading In Forex
If you look at the quotation structure of Forex currency market, you will see something
like USD/EUR or GBP/USD. These are the Forex currency pairs.
All Forex trades that involve buying of one currency and selling of another, are done in
Forex currency pairs. E.g. you buy Euros with US Dollars anticipating that the price of
Euro will increase in value relative to the US Dollar. So, when the Euro rises relative to
Dollar, you sell it and make profits.
Common trading pairs
The Forex currency pair is a single unit, an instrument that is bought or sold in the forex
market. Though there are many currency pairs available in a Forex trading system the
most commonly traded Forex currency pairs are:
EUR/USD – Euro vs. U.S. Dollar
GBP/USD: British Pound vs. U.S. Dollar
USD/JPY: U.S. Dollar vs. Japanese YEN
USD/CHF: U.S. Dollar vs. Swiss franc
In the Forex currency pairs, the value of one currency is determined by its comparison to
another currency. When the Forex currency pairs are quoted, the first currency is referred
as base currency and the second currency is called counter or quote currency.
The base currency is always equal to 1 monetary unit of exchange (e.g. 1 EUR, 1 GBP, 1
USD). The currency pair shows how much of the quote currency is needed to purchase
one unit of the base currency.
Buying and selling
The Forex currency pairs are usually traded and quoted with a ‘bid’ and ‘ask’ price. The
‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which
he is willing to sell.
For example, if the USD/EUR currency pair is quoted as - USD/EUR = 1.5 and you
purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you
sold the currency pair, you receive 1.5 euros for every US$1 you sell.
Base Currency
This is the first currency quoted in a Forex currency pair. It is also known as domestic
currency or accounting currency and sometimes referred to as the primary currency of a
Forex currency pair. For example, CAD/USD currency pair. Here the Canadian dollar is
the base currency while the U.S. dollar is the quote currency.
The price represents how much of the quote currency is needed to get one unit of the base
currency.
Major base currencies:
Euro - EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
British Pound - GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD=
US Dollar - USD/CAD, USD/JPY, USD/CHF
Quote Currency
This is the second currency quoted in a Forex currency pair. This is also referred to as the
foreign currency, secondary currency or counter currency.
Major quote currencies:
U.S. dollar
British pound
Euro
Japanese yen
Swiss franc
Canadian dollar
like USD/EUR or GBP/USD. These are the Forex currency pairs.
All Forex trades that involve buying of one currency and selling of another, are done in
Forex currency pairs. E.g. you buy Euros with US Dollars anticipating that the price of
Euro will increase in value relative to the US Dollar. So, when the Euro rises relative to
Dollar, you sell it and make profits.
Common trading pairs
The Forex currency pair is a single unit, an instrument that is bought or sold in the forex
market. Though there are many currency pairs available in a Forex trading system the
most commonly traded Forex currency pairs are:
EUR/USD – Euro vs. U.S. Dollar
GBP/USD: British Pound vs. U.S. Dollar
USD/JPY: U.S. Dollar vs. Japanese YEN
USD/CHF: U.S. Dollar vs. Swiss franc
In the Forex currency pairs, the value of one currency is determined by its comparison to
another currency. When the Forex currency pairs are quoted, the first currency is referred
as base currency and the second currency is called counter or quote currency.
The base currency is always equal to 1 monetary unit of exchange (e.g. 1 EUR, 1 GBP, 1
USD). The currency pair shows how much of the quote currency is needed to purchase
one unit of the base currency.
Buying and selling
The Forex currency pairs are usually traded and quoted with a ‘bid’ and ‘ask’ price. The
‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which
he is willing to sell.
For example, if the USD/EUR currency pair is quoted as - USD/EUR = 1.5 and you
purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you
sold the currency pair, you receive 1.5 euros for every US$1 you sell.
Base Currency
This is the first currency quoted in a Forex currency pair. It is also known as domestic
currency or accounting currency and sometimes referred to as the primary currency of a
Forex currency pair. For example, CAD/USD currency pair. Here the Canadian dollar is
the base currency while the U.S. dollar is the quote currency.
The price represents how much of the quote currency is needed to get one unit of the base
currency.
Major base currencies:
Euro - EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
British Pound - GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD=
US Dollar - USD/CAD, USD/JPY, USD/CHF
Quote Currency
This is the second currency quoted in a Forex currency pair. This is also referred to as the
foreign currency, secondary currency or counter currency.
Major quote currencies:
U.S. dollar
British pound
Euro
Japanese yen
Swiss franc
Canadian dollar
Forex:Market Terminology
Spot Deal
A deal taking part between two parties who can deliver a certain amount of different
currencies to each other within 2 business days of each other (excluding Canadian dollar
where the trade is executed within 1 business day)
Market Order
This is the execution you make when deciding to buy a currency. In other words you see
a currency exchange rate quote on screen and you place a ‘market order’ when you click
the button to execute the trade.
Entry Orders
This is basically and advance order, you decide at what price you want to buy or sell a
currency and you place an ‘entry order’. As soon as the currencies reaches this rate your
trade is exucted.
Stop-Loss Order
This is a function offered by some brokers which is aimed at reducing your risk, you can
decide the maximum and minimum amount of profit or loss you want to exit a trade at. In
other words if you decide you are happy to make $1,000 from one trade but don’t want to
lose anymore than $1,000 should the trade go the other way you can place this safety net
on your trade.
Bid
This is the currency rate that you wish to buy or sell at.
Offer
This is the currency rate you will actually get when buying or selling
Spread
The difference between the bid and offer rates
Pip
This is the last decimal of the exchange rate with the exception of the Japanese Yen
where it is the second decimal.
Lot
The amount of units of the base currency when you enter the market.
Margin
The minimum amount of money you need for each lot to trade, for example the margin
may be 1 lot for $100 and therefore you would need $300 in your account to trade 3 lots.
Trend
The direction the market is currently moving in.
Long Position
This is used to describe a market in a long-term buy trend
Short Position
This is used to describe a market in a short-term sell trend
A deal taking part between two parties who can deliver a certain amount of different
currencies to each other within 2 business days of each other (excluding Canadian dollar
where the trade is executed within 1 business day)
Market Order
This is the execution you make when deciding to buy a currency. In other words you see
a currency exchange rate quote on screen and you place a ‘market order’ when you click
the button to execute the trade.
Entry Orders
This is basically and advance order, you decide at what price you want to buy or sell a
currency and you place an ‘entry order’. As soon as the currencies reaches this rate your
trade is exucted.
Stop-Loss Order
This is a function offered by some brokers which is aimed at reducing your risk, you can
decide the maximum and minimum amount of profit or loss you want to exit a trade at. In
other words if you decide you are happy to make $1,000 from one trade but don’t want to
lose anymore than $1,000 should the trade go the other way you can place this safety net
on your trade.
Bid
This is the currency rate that you wish to buy or sell at.
Offer
This is the currency rate you will actually get when buying or selling
Spread
The difference between the bid and offer rates
Pip
This is the last decimal of the exchange rate with the exception of the Japanese Yen
where it is the second decimal.
Lot
The amount of units of the base currency when you enter the market.
Margin
The minimum amount of money you need for each lot to trade, for example the margin
may be 1 lot for $100 and therefore you would need $300 in your account to trade 3 lots.
Trend
The direction the market is currently moving in.
Long Position
This is used to describe a market in a long-term buy trend
Short Position
This is used to describe a market in a short-term sell trend
Forex: What is a Market Maker?
A Market Maker is the counterparty to the client. The Market Maker does not operate as
an intermediate or trustee.
A Market Maker performs the hedging of its clients' positions according to its policy,
which includes offsetting various clients' positions, hedging via liquidity providers
(banks) and its equity capital, at its discretion.
Who are the Market Makers in the Forex industry?
Banks, for example, or trading platforms who buy and sell financial instruments at the
market. That is contrary to intermediates, which represent clients, basing their income on
commission.
In recent times there has been a big boom of online Forex brokers, there are no longer
just one or two dominant market makers. Even more recently trading platforms have
begun to reduce their minimum deposit levels bringing in accounts known as Mini-Forex
accounts. These accounts often have minimum deposit levels of less than $100 making
Forex a far more attractive market for the public than ever before.
Do Market Makers go against a client's position?
By definition, a Market Maker is the counter party to all its clients' positions, and he
always offers a two-sided quote (two rates: BUY and SELL). Therefore, there is nothing
personal with the trading conduct between the Market Maker and the customer.
Market Makers regard the total positions of their clients as a whole, same goes for banks
and other market makers in the Forex market. They offset between clients' opposite
positions, and hedge their net exposure according to authorities' guidelines and their risk
management policies.
Certain market makers such as trading platforms will offer a managed Forex account, this
means that they will work with you to help ensure you are always trading effectively.
Because of the genetic make-up of the Forex industry a managed account can be very
beneficial to both the trader and the platform.
Do market makers and clients have a conflict of interest?
Market makers are not intermediates, neither portfolio managers, nor advisors who
represent customers (while earning commission), but rather they buy and sell goods to the
customer. By definition, the Market Maker always provides a two-sided quote (the sell
and the buy price), hence maintains neutrality as for the client.
Banks do that, same with merchants in the markets, who buy goods and sell it to
customers. The relationship between the trader (the customer) and the Market Maker (the
bank; the trading platform; etc.) is simply based on fundamental market forces: supply
and demand.
Think of a market maker as a shop, they buy in certain currencies and then sell the
currencies on based on demand. Of course they may sell some currencies for more than
they bought them for hence they make money. The advantage of this for the day trader is
that no commissions are charged on transactions so the shine of a profitable trade cannot
be taken away!
Can a Market Maker influence market prices against clients' position?
Definitely not, because the Forex market is the nearest to being a "perfect market" (as
defined by economics theory).
This is the biggest market today, reaching a daily volume of 3 trillion dollars throughout
the globe. That means that there is no single participant in the market, banks and
governments included, who can consistently push the price in a certain direction. It is the
traders and the public that determine the demand for currencies and therefore their price
and any rises are falls in value.
How do Market Makers manage their exposure?
The way most Market Makers hedge their exposure is to hedge on bulk. They aggregate
all clients' positions and pass some, or all, of their net risk to their liquidity providers.
Think of it this way, a large distributor buys in thousands of units of a product and then
re-sells them for a higher price, the distributor does not need to sell all of its stock at full
price to make a profit since it acquired the product at a cheaper than retail price in the
first place. Whilst the Forex market obviously has some major differences, the principles
are the same.
an intermediate or trustee.
A Market Maker performs the hedging of its clients' positions according to its policy,
which includes offsetting various clients' positions, hedging via liquidity providers
(banks) and its equity capital, at its discretion.
Who are the Market Makers in the Forex industry?
Banks, for example, or trading platforms who buy and sell financial instruments at the
market. That is contrary to intermediates, which represent clients, basing their income on
commission.
In recent times there has been a big boom of online Forex brokers, there are no longer
just one or two dominant market makers. Even more recently trading platforms have
begun to reduce their minimum deposit levels bringing in accounts known as Mini-Forex
accounts. These accounts often have minimum deposit levels of less than $100 making
Forex a far more attractive market for the public than ever before.
Do Market Makers go against a client's position?
By definition, a Market Maker is the counter party to all its clients' positions, and he
always offers a two-sided quote (two rates: BUY and SELL). Therefore, there is nothing
personal with the trading conduct between the Market Maker and the customer.
Market Makers regard the total positions of their clients as a whole, same goes for banks
and other market makers in the Forex market. They offset between clients' opposite
positions, and hedge their net exposure according to authorities' guidelines and their risk
management policies.
Certain market makers such as trading platforms will offer a managed Forex account, this
means that they will work with you to help ensure you are always trading effectively.
Because of the genetic make-up of the Forex industry a managed account can be very
beneficial to both the trader and the platform.
Do market makers and clients have a conflict of interest?
Market makers are not intermediates, neither portfolio managers, nor advisors who
represent customers (while earning commission), but rather they buy and sell goods to the
customer. By definition, the Market Maker always provides a two-sided quote (the sell
and the buy price), hence maintains neutrality as for the client.
Banks do that, same with merchants in the markets, who buy goods and sell it to
customers. The relationship between the trader (the customer) and the Market Maker (the
bank; the trading platform; etc.) is simply based on fundamental market forces: supply
and demand.
Think of a market maker as a shop, they buy in certain currencies and then sell the
currencies on based on demand. Of course they may sell some currencies for more than
they bought them for hence they make money. The advantage of this for the day trader is
that no commissions are charged on transactions so the shine of a profitable trade cannot
be taken away!
Can a Market Maker influence market prices against clients' position?
Definitely not, because the Forex market is the nearest to being a "perfect market" (as
defined by economics theory).
This is the biggest market today, reaching a daily volume of 3 trillion dollars throughout
the globe. That means that there is no single participant in the market, banks and
governments included, who can consistently push the price in a certain direction. It is the
traders and the public that determine the demand for currencies and therefore their price
and any rises are falls in value.
How do Market Makers manage their exposure?
The way most Market Makers hedge their exposure is to hedge on bulk. They aggregate
all clients' positions and pass some, or all, of their net risk to their liquidity providers.
Think of it this way, a large distributor buys in thousands of units of a product and then
re-sells them for a higher price, the distributor does not need to sell all of its stock at full
price to make a profit since it acquired the product at a cheaper than retail price in the
first place. Whilst the Forex market obviously has some major differences, the principles
are the same.
The advantages of trading Forex
Liquidity: In the FOREX market there is always a buyer and a seller. The FOREX
absorbs trading volumes and per trade sizes which dwarfs the capacity of any other
market. On the simplest level, liquidity is a powerful attraction to any investor as it
suggests the freedom to open or close a position at will 24 hours a day.
Access: The FOREX is open 24 hours a day, any individual trader can react to news
when it breaks, rather than waiting for the opening bell of other markets when everyone
else-has the same information. This allows traders to take positions before the news
details are fully factored into the exchange rates.
Two-Way Market: Currencies are traded in pairs, for example dollar/yen, or
dollar/Swiss franc. Every position involves the selling of one currency and the buying of
another. If a trader believes the Swiss franc will appreciate against the dollar, the trader
can sell dollars and buy francs (“selling short’). If one holds the opposite belief, that
trader can buy dollars and sell Swiss francs (“buying long”). The potential for profit
exists because there is always movement in the exchange rates (prices).
This is what helps make the Forex unique since it is possible to profit from both rises or
falls in the price of any given currency!
Trends: Over long and short historical periods, currencies have demonstrated
substantial and identifiable trends. Each individual currency has its own “personality,”
and each offers a unique historical pattern of trends, providing diversified trading
opportunities within the spot FOREX market.
There are many, many other advantages of trading the Forex and we recommend that you
choose your broker wisely since the broker you choose can be critical in determining
your success (or otherwise) when trading currencies online.
absorbs trading volumes and per trade sizes which dwarfs the capacity of any other
market. On the simplest level, liquidity is a powerful attraction to any investor as it
suggests the freedom to open or close a position at will 24 hours a day.
Access: The FOREX is open 24 hours a day, any individual trader can react to news
when it breaks, rather than waiting for the opening bell of other markets when everyone
else-has the same information. This allows traders to take positions before the news
details are fully factored into the exchange rates.
Two-Way Market: Currencies are traded in pairs, for example dollar/yen, or
dollar/Swiss franc. Every position involves the selling of one currency and the buying of
another. If a trader believes the Swiss franc will appreciate against the dollar, the trader
can sell dollars and buy francs (“selling short’). If one holds the opposite belief, that
trader can buy dollars and sell Swiss francs (“buying long”). The potential for profit
exists because there is always movement in the exchange rates (prices).
This is what helps make the Forex unique since it is possible to profit from both rises or
falls in the price of any given currency!
Trends: Over long and short historical periods, currencies have demonstrated
substantial and identifiable trends. Each individual currency has its own “personality,”
and each offers a unique historical pattern of trends, providing diversified trading
opportunities within the spot FOREX market.
There are many, many other advantages of trading the Forex and we recommend that you
choose your broker wisely since the broker you choose can be critical in determining
your success (or otherwise) when trading currencies online.
Subscribe to:
Posts (Atom)
