Which Forex market to trade?

As my last post was on which Forex currencies to trade, this post will be on which Forex Market to trade. Though you can trade Forex 24 hours a day round the clock, effectively the time you trade will determine which Forex market you are trading since basically the Forex market is active when the banks and financial institutions in that particular market are active.Which are the top Forex markets in terms of turnover? Well based on the latest (2007) report from the Bank for International Settlement (BIS), the international supervisory body for banks around the world, the Top 10 Forex markets are the following with their percentage market share. Their positions in the previous report in 2003 are shown in brackets. You can download the report from this site if you are interested.

1. (1) UK 34.1%
2. (2) USA 16.6%
3. (8) Switzerland 6.1%
4. (3) Japan 6.0%
5. (4) Singapore 5.8%
6. (6) Hong Kong 4.4%
7. (7) Australia 4.3%
8. (9) France 3.0%
9. (5) Germany 2.5%
10. (11) Denmark 2.2%

An interesting development is that Japan used to be the traditional no.3 but is now overtaken by Switzerland while Germany has fallen from no.5 to no.9 since the last report. The top 2 markets, UK (London) and USA (New York), account for more than half the world's market share. (Malaysia is way down with only 0.1% market share.) We can thus break up the Forex world broadly into 3 markets, viz the Asian (centred on Japan), European (London) and US (New York) markets. By adding the individual country's market share, we get these figures. (Australia is counted as Asian for this purpose.)

Asian - 20.4%
European - 47.9%
US - 16.6%

You would expect the market volatility to reflect this market share but generally you’ll find that the Asian market is the least volatile, the US market is the most volatile and the European market is somewhere in between. Maybe this is a reflection of the number of active individual Forex traders as opposed to just the banks and institutional traders.

Since it will be very confusing if every market is shown in their own local time so for easy reference, most trading platforms use the GMT, Greenwich Mean Time, as a common reference. How does the 24 hours Forex trading day move along? Well, the day starts with the Australian (Sydney) market that opens at 9pm GMT (5am MYT, Malaysian time, or 5pm EST – NY time). This is followed by the Tokyo market at 11pm GMT (7am MYT or 7pm EST). Next to come on will be the Singapore and Hong Kong markets at 1am GMT (9am MYT or 9pm EST). The Asian market will then be in full swing. After about 5 hours, the continental European market will start at 6am GMT (2pm MYT or 2am EST). An hour later, the biggest market, the London market will start at 7am GMT (3pm MYT or 3am EST). Finally the New York market starts at 12 noon GMT (8pm MYT or 8am EST) and ends at 9pm GMT. That’s when the Sydney market opens to another day and the cycle repeats all over again.

It will be easier if you plot the above in a chart and you can also see how the markets overlap. I have done one chart using Excel, and if you want a copy, just e-mail me.

Please note that the starting and ending times above are approximate and they refer to the period of Daylight Saving Time, usually from March to October for Europe and USA. Outside this period or during Standard Time, just add one hour to the MYT. An easy way to remember the EST, Eastern Standard Time (or New York time) is that it is exactly 12 hours behind Malaysian time so if it is 8pm in MYT, it is 8am in EST; just change PM to AM and vice versa. (This is during the Daylight Saving Time period.) For more details on this and on time conversion, you can visit this Time and Date site. Malaysian Time is always GMT + 8 hours.

For us in Malaysia, the trading day can be divided roughly into three sessions. They are Morning, the early Asian market, Afternoon, the later part of the Asian and the early part of the European markets and lastly Night, the late European and the early US markets. After midnight it will be the last half of the US market for the night owls. So we can choose when we want to trade depending on our daily routine and we can always fit the Forex trading hours into our lives and not the other way round.

As mentioned earlier, each market has a different character and volatility and after trading for some time, you will notice it. This is generally the case but since there is never certainty in the Forex market, there will be some uncharacteristic movements from time to time especially around the times of major reports or economic announcements.

Since the Lunar New Year is just round the corner and Monday will be the start of the year of the bull so here’s wishing it will be a bullish and prosperous year for all viewers, especially for the Forex traders. Good luck in your trades.

Ronald Kwok
http://ronaldkwok.atomicblog.hop.clickbank.net/