For those who are or want to start trading the Forex market, some of you may be attracted to it because it is a 24 hour market. Unlike the equities market, the Forex market does not close (except on weekends) and trading is available from Sunday 10:00 pm GMT to Friday 10:00 pm GMT.
Is it really true that the Forex market is a 24 hour market?
True, trading is available 24 hours a day and the Forex market does not close. However, price movements are not equal throughout the whole period. The currency pairs can be active on a certain timing and at other periods, it may be dormant with little movements.
Trading a certain currency pair during its dormant period may result in the price movement not following through of what you have analysed, turning against you and get your trade stopped out only to resume its movement when trading volume picks up.
So, to prevent that scenario from happening, it is important to ask two questions to decide which currency pairs to trade.
Who is Trading?
By trading on the Forex market, one is always selling a currency and buying another at the same time, and that is precisely why the term “currency pair” is used. There is usually price movement of the currency pair when the financial centers of the countries using the individual currencies is open.
For instance, currencies involving the US Dollar (USD) would usually have price movements when the US market is opened, while the Euro (EUR) would usually have price movements when the Europe markets are opened. Therefore, the EUR/USD currency pair will usually have to have both Europe and US markets opened to have the price action follow through.
Who is Awake?
Now that we know that a currency pair has to have both of the markets to open for price movements, next question will be when are the markets open? For this, we will look at the few major financial markets and the six major currencies affected.
Wellington (NZD), Sydney (AUD): 22:00 GMT – 07:00 GMT
Tokyo (JPY): 00:00 GMT – 10:00 GMT
Frankfurt (EUR), London (GBP): 07:00 GMT – 17:00 GMT
New York (USD): 13:00 GMT – 22:00 GMT
Because a currency is active when the affecting financial center is open, therefore the overlapping market opening and closing timings is when the currency pairs will be most active.
The Bottom Line
Although the Forex market is a 24 hour market, not all the 24 hours are created equal. The price movement during 8am – 10am on a currency pair may not be the same during 8pm – 10pm. Thus when we sit down in front of our terminals wanting to trade in the Forex market, it is important to understand at that time, which of the financial centers are open for the trading day and this will define which of the currency pairs you will see price action movements. Trading at odd hours when there is no volume will only likely to expose yourself to the price actions not following through.
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