Regardless of where you are in the world it is important to know what times of day will give you the best trading conditions (Prime Time).
We all know the FX market is “global” and “never sleeps” but there are certainly times when the markets take a “nap”. Generally this occurs as we move from one trading zone to another but can we be more specific?
The following chart helps to visualize the markets “heartbeat” showing volume spikes at specific times. We have plotted the distribution of FX volume by time of day for three major currency pairs: EURUSD, USDJPY & USDCAD. X-Axis time is GMT and the volume is derived from the 2 largest wholesale trading platforms: EBS & Reuters Matching.
So what can we determine from the above?
• The spike in USDJPY on the left is during the Tokyo Fix
• EURUSD and USDJPY are somewhat more distributed whereas we see USDCAD volume highly concentrated from 12:00 to 16:00 GMT (07:00 to 12:00 NY)
• In this example the three volume spikes are: 13:30 US Data, 15:00 Option Expiries and 16:00 the WMR fix (worth noting that USDCAD appears significantly more active during the WMR)
• From the chart: increased volume likely equates to better liquidity therefore the best times to take advantage of this is between 12:00 and 17:00 GMT.
We mentioned the Tokyo Fix and the WMR Fix – what are they?
Fixings occur at predetermined and pre-set times of day when the mid-rate (of executed transactions derived from multiple wholesale trading platforms) is averaged resulting in a mid-rate that is published. The most popular fixings are; the Tokyo fixing at 00:50 GMT, the ECB fix at 12:15 GMT and the WMR fixing at 16:00 GMT.
Typically, the largest volume at fixings is generated by Asset Managers (because they have a fiduciary responsibility to get their clients the best possible execution) along with Funds, Investment Managers, & Corporate Treasurers with the thought process being that the fixing price is the most transparent of the day. (published on Reuters, Bloomberg etc.)
So it makes sense to see increased volume after the fix based on the above. But why the increased volatility leading up to the fix itself?
Simply put; if banks have lots of buy orders at the fixing rate it is in their interest to push the market up in advance of the fixing, in order to fill the client orders at a higher price. Conversely more sell orders at the fixing rate is likely to see the market move lower to fill clients orders at a lower price.
You may recall that there have been several fines imposed by global regulators on Banks that had “abused” the above. A good article on Fix Rigging can be found here.
So the most important takeaway is to be very wary of market volatility leading up to and following a Fixing.
Volatility = Opportunity
Safe and Happy Trading!
#tradesafely #doublehit #fxzoo