Sunday, February 5, 2012

Forex Market Hours - 4 Things You Must Know

One of the hyped facts about the forex trading by the brokers is the market hours. It is marketed as a 24 hour market. Many novice traders jump into the market with an imagination of earning more than other markets due to increased time they can spend in the market. But traders especially the beginners need to know the facts. You should understand the true Forex market hours.

The Three Sessions of Forex Trading
There are broadly three sessions that form the forex market hours. The three sessions are called Asian, European and US sessions. As the names suggest, the predominant activity in the market happens in that particular region. During the Asian session, the Asian markets are very active. Same is true for European and US session. Each session overlaps with the next session meaning that during this period two sessions are active at the same time. During these overlap times, you will find that the activity in the market is increased because more people are active. Also normally during each session, the activity in the local currency is at the peak. For example in the Asian session, Australian dollar, New Zealand dollar and Japanese Yen see increased activity than other times.
Low Liquidity
The forex market hours start in Sydney on Sunday evening or night depending on where you live. It closes on Friday when New York closes. So it is open 24 hours. But you should understand how it will benefit you as a trader. Even though the market is open 24 hours it is not active during certain period of the day. The time between New York close and Sydney open is very dormant as compared to other times. The liquidity during this time is thin. Trades that took place during this time are mostly the trades of exporters and importers as opposed to the market participants such as traders.
High Spread
As a trader you should make sure that you pay less money in the commissions. During this time the spread is high. Even on currency pairs like EUR/USD it is 4-5 pips. The high spread also acts as a false signal to trade. If you have placed a pending order to buy, it might get triggered due to high spread. In normal market conditions such order may not be fulfilled saving you from the losing trade. So you have to be careful. You can trade the market anytime but you should not.
Low Volatility
As a trader you may want to trade during the most active forex market hours. During the active market you get the volatility. If you want to make money, you should play when there is volatility in the market. High volatility times are towards the end of Asian session, European session and US session. At other times there are subdued moves. So you will have to wait patiently till the volatility increases.
It is the fact that forex market is open 24 hours. But forex market hours should not be the reason why you should trade the forex. You should know the fine details of the market. You will know these details as you spend time in the market. It is very risky to venture into something like forex with real money when you don't know much about it. So the best way is to trade virtually till you get comfortable.
By  Matthew John