You have certainly heard that markets never sleep. And in the case of the Forex market, this expression reflects the 24 hours a day, 5 days a week that it operates. This is made possible by reconciling the different times of the Forex market on the various continents. In other words, each region of the planet has a fixed time in which to open and close its operations markets.
However, while one is ending, another is starting or is already starting, creating an overlap of sessions that we will cover later in the article. In this way operations are guaranteed 24 hours a day, every day.
What is the Forex market?
The term Forex, or “FX”, corresponds to an abbreviation of the expression Foreign Exchange Market and is commonly used as a reference to the foreign exchange or foreign exchange market. In a simplified way, we can define it as the digital place where one currency is exchanged for another.
Any Forex transaction involves the purchase of one currency and the simultaneous sale of another. And for this reason, we say that currencies are traded in pairs.
At the moment you may be asking yourself: how is it possible to obtain income from this operation ? Let us see, through a practical case, how this market works.
If you have ever traveled to a country that does not belong to the Eurozone, you probably had to look for an establishment where you managed to exchange your euros for local currency. And if you have actually exchanged your money, whether in physical establishments or in digital applications, you can say that you have already participated in the Forex market .
If you went to a currency exchange, it is also very likely that you noticed the different rates that are presented, comparing the local currency with the others.
These rates are called exchange rates , or exchange rates in Portuguese, and express the relative price of the two currencies in question.
Let’s now assume that you are back home after your trip and want to exchange your remaining money for euros. When you go to the same establishment you realize that the exchange rates have changed and that, in relative terms, you will get more euros with the new rates in force.
In this case, he is profiting due to the variation of exchange rates, obtaining income in the Forex market.
As we can see from the example above, these types of transactions often occur without even having the perception that we are operating in a financial market. In fact, Forex corresponds to the financial market with the highest volume of transactions.
Who participates in the Forex market?
The institutions participating in this foreign exchange market are:
- Central Banks
- The government’s
- Commercial and Investment Banks
- Investment Funds
- Brokerage firms
- Professional and Private Investors
- Retail Investors
We can divide these entities by their participation, directly or indirectly , in the Forex market.
The central banks are big players , having a very influential and direct participation in the Forex market. This is because they control the amount of currency in circulation and the monetary policies of each country. (To better understand the intervention of central banks, see this article .)
The same is true of Governments in implementing their economic policies.
The other banks, commercial and investment banks , are responsible for the largest volume of transactions in the Forex market , through their clients’ transaction requests and through interbank exchanges . In 2016, the banks that captured the highest volume of transactions in the Forex market were CitiBank, JP Morgan, UBS, Deutsche Bank and Barclays .
The other players in the Forex market intervene indirectly. That is, they are subject to the evolution of the market according to the intervention of other players .
The commercial enterprises need the foreign exchange market to import and export goods and service s. The investment funds need foreign currency to make investments abroad . The investors , on the other hand, use this market as a source of income .
Forex trading sessions
The Forex market is an Over the counter (OTC) market, that is, a decentralized market . And therefore, there is an exchange network between the various players worldwide.
However, there are different exchange sessions depending on the following regions of the globe:
- New York
The schedule for each of these sessions depends on the schedule of the various players in each region. Thus, each region has its session open for 9 hours, with the exception of the weekend , which ends up allowing an open market 24 hours a day, during the week, all over the world.
In the image above we can see that, although each session is only open for 9 hours, while one ends, another is starting (or has already started). The image shows the opening and closing hours of each session.
It is also common to hear the terms » Asian session «, which corresponds to the junction of the Sydney session and the Tokyo session; “ European session ” which is equivalent to the London session and “ American session ” in reference to the New York session.
We can notice that, between each forex trading session, there is a period when two sessions are open at the same time.
At certain times, the Tokyo session and the London session will overlap and the same will happen with the London and New York sessions.
These are the busiest times during the trading day, as traditionally there are higher volumes traded when two markets are open at the same time.
This is justified because, during these periods, there are more market participants to trade.
In the image above “Forex Market Sessions”, we see that the green colors in the background represent the volume of transactions carried out, that is, the hours in which the green is most intense usually have the highest volume of transactions that correspond to the periods of overlapping sessions .
UTC time is one hour less than continental Portugal time. (Let’s assume you are reading this article at 10 am in Portugal, so it will be 9 am UTC). Thus, the times of the Forex market at the time of mainland Portugal today are as follows:
- Sydney Session: from 11 pm to 7 am
- Tokyo session: from 00:00 to 09:00
- London Session: 8am to 5pm
- New York session: 1:00 pm to 10:00 pm
It is important to remember that the opening hours of the foreign exchange market will change in March, April, October and November, as different countries adopt different summer times.
What is the best time to invest?
Arriving here, we realized that there is an opportunity to trade in the Forex market at any time of the day during the week. But are there better times to trade in the Forex market?
The answer is yes.
We can associate, at the outset, volatility of currency pairs with risk . Therefore, the times of the Forex market with the highest volatility of currency pairs carry a higher risk . This happens, according to Investing , between 06:00 and 15:00 GMT. That is, between 07:00 and 16:00 in mainland Portugal. It is also at this time when the earning potential is greatest .