Lesson 4: When can you trade Forex?
The earth spins slowly and although Forex is a 24-hour exchange, there are certain times during the day when one country’s economy is more active than another’s. If it is in the middle of the nightin Australia, then there will be less activity with its currency than when it is daytime. Moreover if two country’s trading time’s overlap, then both of their currencies are going to be more active and fluctuations between the two more frequent.
In Forex there are four major sessions, which together cover the whole of the 24-hour clock. This is also split into the summer season, April to October and the winter season, October to April, due to some countries like the UK, which change their clocks during the year. All times are in GMT. T
Summer season Winter season
(April- October) (October – April)
London session 07:00– 16:00 London session 08:00 – 17:00
New York session 12.00-21.00 New York session 13:00 – 22:00
Sydney session 22:00-07:00 Sydney session 21:00 – 06:00
Tokyo session 23:00 -08:00 Tokyo session 23:00 -08:00
Things to consider when trading
In summer, between 07:00-08:00 both London and Tokyo sessions are open at the same time.
Sydney and Tokyo are open at similar times, while London and New York overlap for four hours in the afternoon between 12:00 – 16:00 and 13:00 – 17:00 during summer and winter respectively.The Sydney time seems to “leap forward” two hours from New York Time. This is because as Sydney changes its clock one hour forward, America turn their clocks back one hour.
The London session is the major times for the whole of Europe, not just the UK. This affects transactions and pairings involving the Euro too and any other European currency outside the Euro zone. Similarly, the Tokyo sessions also mean that other major countries, such as the Chinese, Indian and Indian economies are active, should you wish to deal in those.
When two sessions are open at the same time it means that there is going to be more trade and interaction between the two currencies and therefore more fluctuating exchange rates and money to be made.
Forex Trading- a live example
Currently, as I write this at 10am on Thursday 5th March 2015 a quick Google search tells me that £1 is worth $1.5243 dollars. So if I was to exchange £1 I would get $1.52 in return. Therefore £100 would buy me $152, £1000 would get me $1520 etc.
This exchange rate is constantly changing, which can be down to numerous reasons, due to the high amount of people buying and selling currency at any one time, known as liquidity. Forex trading is the constant buying and selling of foreign currency by traders who trade in order to make a profit. The basic rule, like in most forms of trade is to try and buy currencies while they are cheap and sell when they become worth more against the other currency and vice-versa.
While I have been sat here writing other parts of this article the exchange rate between the GB Pound and the US Dollar has changed. The rate at 10am was £1 – $1.5243. At 10.30am this went up to £1-$1.5250. Yes, only $0.007 up, but it makes a difference to traders. If by the end of the day this was to go up to £1-$1.5300 let’s say and I’ve bought £100 worth of dollars then I would have $153.00, one more dollar than when I originally bought them. Therefore I have made one dollar profit.
This is a very small example of how basic Forex trading works.