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Forex market Basic 2

forex marketAround the World in a Trading Day

The Forex market operates 24×7 when it opens on Monday morning in the Asia-Pacific time zone up to Friday at the close of business hours in New York. At any given point in time, depending on the time zone, some or the other global financial centres — such as Sydney, Hongkong, or London — are active, and the currency trading desks in those financial centres are open in that market. Currency trading is active on holidays also, unlike other financial markets, like stock exchange or futures and options market. For e.g. although it’s a holiday in Tokyo, Sydney, London, and Hong Kong may still be active. There is one common holiday across the world that is the New Year’s Day, but even that may occur at different points of time in different countries.

There is no official starting time to the trading day or week as such, but for all intents the market kicks off when the first financial centre west, Wellington, New Zealand, of the international dateline, opens on Monday morning local time. It roughly corresponds to early Sunday afternoon in North America, Sunday evening in Europe and very early Monday morning in Asia.

In North America the trading session opens on a Sunday afternoon where currency markets resume after the Friday close of trading (5 p.m. Eastern time). This is the point where Forex market reacts to news and events that could have happened over the weekend. The prices at which the market may have closed in New York may not remain same over weekend and when it opens again on Sunday, the trading may start at a completely different level.

Trading in the Asia-Pacific Session

As per the 2004 survey, the currency trading volumes in the Asia-Pacific session are approximately 21 percent of total global volume per day. The principal trading centres are Wellington, New Zealand; Sydney, Australia; Tokyo, Japan; Hong Kong; and Singapore. If we look at the most traded currency pairs, the predictions say that it is going to be from New Zealand, Australia, and Japan. On account of the huge size of the Japanese market and the importance of Japanese data to the market, a lot of the action at the Asia-Pacific session is focused on the Japanese yen currency pairs, such as USD/JPY i.e. the U.S. dollar/Japanese yen and similarly the EUR/JPY and AUD/JPY. Since the Japanese financial institutions are also most active during this session, so we can actually get a sense of what the Japanese market is doing based on price movements. For individual traders, the information about overall liquidity in the major currency pairs is more than enough. There are some non liquid currencies like GBP/USD or USD/CAD where price movements may be more erratic or nonexistent, depending on the environment.

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Trading in the European/London session

European financial centres begin to open up when the Asian market is at its midway. As per the 2004 survey, European financial centres and London handle approximately 50 percent of total global trading volume in a day, while London alone accounts for about one-third of the average total global volume per day. The time when European market opens the market interest and liquidity is at its absolute peak. News and data from Europe zone (and individual countries like Germany and France), Switzerland, and the United Kingdom is typically released in the early-morning hours of the European session. Hence, a lot of active trading happens in the European currencies (EUR, GBP, and CHF) and among the euro cross-currency pairs. In the late morning session of Europe, the Asian trading centres begin to wind down, while North American trading session comes in a few hours later, around 7 a.m. ET.

Trading in the North American Session

As we now know that there is a significant overlap time in trading sessions of Europe and North America, hence the trading volumes during this session are much more as compared to other times. Some of the most significant transactions take place during this cross-over time. The North American trading session alone accounts for roughly about 22 percent of global trading volume per day. The key economic data is released in the North American morning and this is the time when the Forex market makes decisions on the value of the U.S. dollar. Let us have a look at the timings when the North American data is released: Most of the U.S. data reports are released at 8:30 a.m. ET, Canadian data reports are also released between 7 and 9 a.m. ET, a few of the U.S. economic reports that variously come out at noon or 2 p.m. ET, livening up the New York afternoon market. By this time, London and the European trading sessions begin to wind up their daily trading operations around noon eastern time (ET) each day. On most days, during North American afternoon the market liquidity and interest fall off significantly, this can make for challenging trading conditions. For more information, click here!

For Forex Basic Part 3, go to http://currencydaytrading.org/forex-market-basics-3/

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