FX Explained

It is not my interest to put kiddo stuff in this blog. But I have been asked frequent enough on this front and let me handle this once and for all.

FX market worth over $3trillion in average daily turnover, and that essentially make it the largest market in the world. Having said that not many people really have a good knowledge of this sleeping giant, especially among individual traders and investors, until the popularization of Internet trading last couple of years. Before, it was mainly confined in the domain of large financial institutions.

There are three major financial centres around the world and it covers activity in the Asian, European and North American markets, spanning most of the world’s time zones.

The Asian session is centered on the active Tokyo trading hours. Officially, this encompasses the times that the Tokyo Stock Exchange is open between 7:00 pm and 4:00am (EST), but it stands to reason that the currency market gets going an hour or two before and after the equity markets begin and end their day.

Meanwhile, the Eurozone is centered on its largest economy (Germany), Europe’s financial capital is London. Exchanges in the UK are officially open between 3:00am and 11:30 am (EST), but once again, the presence of traders in European countries east of London an the all-hours nature of the forex market expand this range in both directions by a few hours.

Finally, the North American session ends the calendar day with a concentration of activity around the opening hours of the New York exchanges. New York’s exchanges are active between the 9:00 am and 4:30 pm (EST), but traders will log on a few hours early to see how price action is developing before the official open of markets in the US.

Usually, the greatest level of price action occurs when the US and European sessions overlap between 9:00am and 12:00pm (EST) as well as when around 4:00am (EST) – when the early part of the European session overlaps with the latter part of the Asian session.

Consistent disparities in economic performance can often bring many trading opportunities in currency crosses Some currencies appreciate substantially greater against the US dollar while other barely gain even a few points. Currency crosses, in a simplified way, merely measure the relative strength of one individual currency against another.