The forex trading market is the hub through which all global investment and commercial capital flows. A UK insurance fund investing in US Treasuries or a European manufacturer purchasing Japanese components generate cross border transactions that all pass through the forex market.
But even these huge commercial forex transactions are relatively small when set against the sheer size and volume of speculative trades. This vast market is also the most liquid and the higher the liquidity the faster and easier it is to execute trades.
It’s important, though to realise that this liquidity is not constant and varies not only though out the forex trading week but also on a daily basis.
The forex market barely pauses for breath on weekends and is no respecter of holidays such is the global 24/7 nature of the market.
Whilst there is no official start to the forex trading week forex trading kicks off whenthe first financial center west of the international dateline opens in Wellington, New Zealand on Monday morning. Which equates to Sunday afternoon in the US, Sunday evening in Europe and very early Monday morning in Asia.
The week closes on a Friday at close of business in the US at 5.00pm EST.
When the week first opens because there are fewer players and forex brokers active in the market, liquidity is lower and price spreads higher. Prices tend to open in line with the previous Fridays close unless a major event has happened in between. This could be anything from a G7 meeting, a natural disaster or even a military coup.
Focus on individual currency pairing is likely to be at it’s highest as and when the different regions open for business. The busiest time for Forex Trading is the opening of the London and European markets which overlap the Asia / Pacific trading period (in the morning) and the US trading period (in the afternoon.) The London and European markets account for over 50% of the global trading volumes.
In addition to these major market opening and closing times there are a number of important daily times and events to look out for:-
Option Expiry – Tokyo (3.00pm local time) and New York (10.00am EST) When options expire and currency hedging will need to be unwound in the forex market.
Daily currency fixing rates – 8.55am Tokyo and 4.00pm London. These currency fixings are a set time when the prices for commercial transaction are fixed and this results in a surge in trading prior to the fixing time.
Currency Future Squaring – Daily currency futures trading closes each day on the International Monetary Market (IMM) at 2.00pm CT. Sharp movements in the currency futures market can have a knock on effect in the broader forex market.
