- It will be important for you to learn a little about the history of forex trading, later on. For now, you should understand how the market works today and who the players are.
-The Interbank Market is considered “The Market.” It is the market where large sums of money will change hands. A minimum trade size in the Interbank Market is $1 million of the base currency. Large trades such as $10 million or $100 million will be processed by the Interbank Market in a matter of seconds. The good news for you is that the Interbank Market is huge, allowing investors to make their movements without the prices changing significantly. It is possible for an investment of one million dollars to earn money, while a half billion investment dollar hedge fund loses due to the wrong choice in position.
-The Interbank Market was designed to facilitate trade and commerce. The commerce and trade happening between nations. International financial institutions act as currency exchange intermediaries in order to settle forex transactions.
-Over several decades, the informal conglomeration of banks helping to facilitate trade and commerce evolved into a collective group called the interbank meaning between banks. The Interbank Market developed without any significant government regulation, and it still remains unregulated today. There are national and local banking regulations that are kept to and the banks do have to honor all trades made, in which one party must supply one currency and the other party must trade the other currency.
-The Interbank Market deals with corporations and government agencies. They will also offer trading options for extremely wealthy private individuals. Forex transactions are done in an over the counter market (OTC). Most of the trades are considered spot trades, which are processed through electronic matching services. These services are mostly provided by two banks: EBS and Reuters Dealing.
-Traders are able to enter their bids/offers or bids/asks into the market. But, these are the large players like other banks. Banks like Wells Fargo can request a currency trade, as well as the daily currency prices. The prices are set based on interest and volatility in the market. Furthermore, the prices you see quoted are going to have a spread. It is called the pip spread.
-You, the trader, will contact a dealer or broker. You will see their price based on volatility and market interest. The bid will be five pips different from the ask price.
-We will come back to pip spread in a moment. For now, you can either contact a broker, dealer or market maker. These entities will contact a bank, which is usually in contact with Reuters or EBS. However, you can have multiple banks in the equation because the market is decentralized. This means there is no “one” entity offering trades.
- As you can see there are a variety of players in the mix. Just remember, the players are:
Commercial Banks Investment Banks
Central Banks Corporations
Fund Managers Online Retail Brokers
Retail Traders (You)
- The term Market Maker was used earlier. A market maker is a bank or broker
-That will quote a two-way price, meaning they offer a buying and selling price to those who inquire about making a trade. Market makers are the ones that will establish the pip spread. It is the market maker’s goal to reduce their risk of loss, and ensure a profit by setting up certain deals to hedge the trades of their clientele.
-Governments and Central Banks are active in the forex market only to help the economy and manage their currency reserves. The USD is considered the international reserve currency for most countries because it is considered a strong currency. However, in light of recent troubles within the US banking system, the EUR and Japanese Yen started gaining strength as a reserve currency to put one’s faith in when things become troubling. The point is that governments and central banks have to maintain their currency reserves to maintain the economy when things are shaken up or even when they are steady. Later, you will learn more about this.
-The important lesson here is which players are in the market, how you fit into the market, and thus why currency prices may move or remain steady. Depending on how large the player’s trade is a price can fluctuate or depending on the day’s interest in one currency over another you can see a change in price. It stands to reason that you need to watch what the major players are doing to be able to predict your next trade.
-Furthermore, you need to know when to invest in this decentralized market. When are the players heavily involved in trades? Are there specific times? You might have heard the forex market is nearly a 24/7 market for you to trade. But, do you want to trade even if the market is open?
WHEN TO TRADE
- Time zones around the world determine when people are awake. New Zealand is the first country with an investment market that will open. Australia soon follows. The Japanese markets follow Australia, which are then followed by Singapore, Hong Kong, and the rest of Asia. Europe joins the waking world, with Switzerland, Germany and the United Kingdom. The Americas are the last to join the waking world, with the USA jumping heavily into the trading action. Typically, you are going to see Forex hours stated in GMT or Greenwich Mean Time.
There are also certain markets that are more popular than others. The top markets are:
- Some places shift times during daylight savings, so you will need to account for that. Knowing the times that each of the most popular markets are open is just the beginning of understanding when to trade.
-You should be aware that half of the forex transactions will take place in the UK or USA. London accounts for 36.7 percent of the forex transactions, while the US accounts for 18 percent of the transactions. Now these percentages are based on the volatility and volume of trades, meaning this is when most people are placing orders.
-Tokyo only sees 6 percent of forex transactions. Singapore, Zurich, and Hong Kong only do 5 percent of the forex transactions, and Sydney comes in last with only 4 percent.
-When London and New York are both open between 1pm and 4pm GMT, is when most of the forex transactions take place. The transition between New York’s close and Tokyo’s open is a very quiet time in the market. You can expect the Japanese Yen pairs with other Asian currencies to be more active during the Asian sessions. Conversely the euro gains liquidity during the open European markets, while the USD has higher liquidity numbers when the USA market is open.
-Placing a trade will, in part, be determined by the currency pairs you wish to trade. The other part of the equation is when you are willing to be awake and online to trade. If you are going to trade during normal working hours, then you will trade when your domestic market is open. You also have the option of setting up orders to enter the Asian-Pacific market when it first opens, since the market will open, while you are still up.
-Be thinking about when you have time to trade, so you can choose the perfect strategy based on when you want to place trades.
-The Interbank Market is considered “The Market.” It is the market where large sums of money will change hands. A minimum trade size in the Interbank Market is $1 million of the base currency. Large trades such as $10 million or $100 million will be processed by the Interbank Market in a matter of seconds. The good news for you is that the Interbank Market is huge, allowing investors to make their movements without the prices changing significantly. It is possible for an investment of one million dollars to earn money, while a half billion investment dollar hedge fund loses due to the wrong choice in position.
-The Interbank Market was designed to facilitate trade and commerce. The commerce and trade happening between nations. International financial institutions act as currency exchange intermediaries in order to settle forex transactions.
-Over several decades, the informal conglomeration of banks helping to facilitate trade and commerce evolved into a collective group called the interbank meaning between banks. The Interbank Market developed without any significant government regulation, and it still remains unregulated today. There are national and local banking regulations that are kept to and the banks do have to honor all trades made, in which one party must supply one currency and the other party must trade the other currency.
-The Interbank Market deals with corporations and government agencies. They will also offer trading options for extremely wealthy private individuals. Forex transactions are done in an over the counter market (OTC). Most of the trades are considered spot trades, which are processed through electronic matching services. These services are mostly provided by two banks: EBS and Reuters Dealing.
-Traders are able to enter their bids/offers or bids/asks into the market. But, these are the large players like other banks. Banks like Wells Fargo can request a currency trade, as well as the daily currency prices. The prices are set based on interest and volatility in the market. Furthermore, the prices you see quoted are going to have a spread. It is called the pip spread.
-You, the trader, will contact a dealer or broker. You will see their price based on volatility and market interest. The bid will be five pips different from the ask price.
-We will come back to pip spread in a moment. For now, you can either contact a broker, dealer or market maker. These entities will contact a bank, which is usually in contact with Reuters or EBS. However, you can have multiple banks in the equation because the market is decentralized. This means there is no “one” entity offering trades.
- As you can see there are a variety of players in the mix. Just remember, the players are:
Commercial Banks Investment Banks
Central Banks Corporations
Fund Managers Online Retail Brokers
Retail Traders (You)
- The term Market Maker was used earlier. A market maker is a bank or broker
-That will quote a two-way price, meaning they offer a buying and selling price to those who inquire about making a trade. Market makers are the ones that will establish the pip spread. It is the market maker’s goal to reduce their risk of loss, and ensure a profit by setting up certain deals to hedge the trades of their clientele.
-Governments and Central Banks are active in the forex market only to help the economy and manage their currency reserves. The USD is considered the international reserve currency for most countries because it is considered a strong currency. However, in light of recent troubles within the US banking system, the EUR and Japanese Yen started gaining strength as a reserve currency to put one’s faith in when things become troubling. The point is that governments and central banks have to maintain their currency reserves to maintain the economy when things are shaken up or even when they are steady. Later, you will learn more about this.
-The important lesson here is which players are in the market, how you fit into the market, and thus why currency prices may move or remain steady. Depending on how large the player’s trade is a price can fluctuate or depending on the day’s interest in one currency over another you can see a change in price. It stands to reason that you need to watch what the major players are doing to be able to predict your next trade.
-Furthermore, you need to know when to invest in this decentralized market. When are the players heavily involved in trades? Are there specific times? You might have heard the forex market is nearly a 24/7 market for you to trade. But, do you want to trade even if the market is open?
WHEN TO TRADE
- Time zones around the world determine when people are awake. New Zealand is the first country with an investment market that will open. Australia soon follows. The Japanese markets follow Australia, which are then followed by Singapore, Hong Kong, and the rest of Asia. Europe joins the waking world, with Switzerland, Germany and the United Kingdom. The Americas are the last to join the waking world, with the USA jumping heavily into the trading action. Typically, you are going to see Forex hours stated in GMT or Greenwich Mean Time.
There are also certain markets that are more popular than others. The top markets are:
| Forex Market | Opening Time (UTC) | Closing Time (UTC) |
|---|---|---|
| Sydney | 22:00 | 06:00 |
| Tokyo | 00:00 | 08:00 |
| London | 08:00 | 16:00 |
| New York | 13:00 | 21:00 |
- Some places shift times during daylight savings, so you will need to account for that. Knowing the times that each of the most popular markets are open is just the beginning of understanding when to trade.
-You should be aware that half of the forex transactions will take place in the UK or USA. London accounts for 36.7 percent of the forex transactions, while the US accounts for 18 percent of the transactions. Now these percentages are based on the volatility and volume of trades, meaning this is when most people are placing orders.
-Tokyo only sees 6 percent of forex transactions. Singapore, Zurich, and Hong Kong only do 5 percent of the forex transactions, and Sydney comes in last with only 4 percent.
-When London and New York are both open between 1pm and 4pm GMT, is when most of the forex transactions take place. The transition between New York’s close and Tokyo’s open is a very quiet time in the market. You can expect the Japanese Yen pairs with other Asian currencies to be more active during the Asian sessions. Conversely the euro gains liquidity during the open European markets, while the USD has higher liquidity numbers when the USA market is open.
-Placing a trade will, in part, be determined by the currency pairs you wish to trade. The other part of the equation is when you are willing to be awake and online to trade. If you are going to trade during normal working hours, then you will trade when your domestic market is open. You also have the option of setting up orders to enter the Asian-Pacific market when it first opens, since the market will open, while you are still up.
-Be thinking about when you have time to trade, so you can choose the perfect strategy based on when you want to place trades.
