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High Volatility: Characteristics of London Forex market hours
- Characteristics of the World’s Largest Exchange Market
- What kind of time is London market time?
- Financial Activity in London
- Which currency is mostly traded in London time?
- Characteristics of Forex markets in London time
- Trading in London time is high-risk high-return
- Why the pound (GBP) is so volatile?
- Tips to trade during London Time
- Be careful of daylight saving time and winter time
- Conclusion
Characteristics of the World’s Largest Exchange Market
The London market, New York market and Tokyo market are called the world’s three major markets in Forex, and the time zones when each market is open are called London time, New York time, and Tokyo time.
Market movements have major characteristics depending on the time of day, but it is important for Forex to grasp the characteristics of London time, which has a lot of transactions.
Forex has a combination of Tokyo time, London time, and New York time, and these three are the main market hours in Forex.
Here, we will focus on London time, which is sandwiched between Tokyo time and New York time.
International Forex market sessions – Trading Volume and Characteristics
What kind of time is London market time?
London time is the time when London’s economy is active, liquid and the London exchange market is open.
London time partially overlaps with Tokyo time in the case of daylight saving time.
It’s not just the London market that moves during the London time.
Before the London market is opened, the markets of EU countries such as Frankfurt, Zurich and Paris were open.
Prior to that, Asian markets such as Singapore and Mumbai and the Bahrain market in the Middle East are also open.
And about five hours after the London market opens, the New York market opens.
In this way, the time when the London market is open overlaps with the time when the Asian, Middle East and American markets are open, as well as other European markets.
As a result, the number of market participants will inevitably increase, and the volume of transactions will also increase.
Which is the Best Currency Pair to trade?
Financial Activity in London
Britain is also a financial nation with a long history.
Many people use their personal financial assets for insurance and pension reserves.
Against this background, the UK tends to have many hedge funds.
In addition, it has a strong connection with the Middle East due to its historical background, and huge amounts of oil money often come in through the London market.
London is also the center of physical trading of precious metals such as gold.
Especially for gold, there is a bilateral transaction that delivers the actual gold, and it is the center of the world in the physical gold transaction.
In this way, London time can be said to be a time that has a great presence not only in foreign exchange but also in precious metal transactions such as gold in kind. Since various financial products are actively traded, their trends often affect the exchange rate.
London time also moves significantly because hedge funds in the “City”, which can be said to be the financial center, are active, and investment products other than foreign exchange are also active.
In addition to that, a large number of trading participants due to the overlapping time of the Middle East and other European markets, as well as the New York market, is another reason why trading in London time is active.
Which currency is mostly traded in London time?
The main market in London time is London.
London is also the main market during “European time” when the markets of other European countries move.
Therefore, many people may think, “Isn’t the pound sterling the leading role in London time?”
In fact, the main currency of London time is the euro, not the pound.
Of course, the pound is also actively traded during London time.
For example, the GBP/USD is a very well traded currency pair in London time.
However, the EUR/USD is the most traded at this time.
And, as you might expect, the USD/JPY pair is also well traded during London time.
During this time, currencies of various countries are traded due to the markets of Europe, the Middle East, Africa, and the United States are opened.
However, the ones that are particularly preferred are the liquid currency pairs.
Therefore, the USD currency pair is inevitably the center, and the trading volume of the EUR/USD, which is a combination with the euro has a large circulation volume.
Also, the USD/JPY, which is a combination of the Japanese yen and the US dollar, which are the safe-haven currency pair, is also traded more than the GBP/USD.
Predict market price with Inter-market analysis of cross pairs
Characteristics of Forex markets in London time
As mentioned above, London time is a time when markets in various countries such as Europe, the Middle East, Africa and the United States are open, so trading is very active and there are many participants.
Shortly after the London market open, daylight savings time also covers the Tokyo market for about an hour, and some Asian markets such as Hong Kong and Singapore also come in.
In addition, price movements will become even more active as the US market begins to move in the afternoon of London time.
In many cases, abundant funds are used at once to set up at once, so during London time, the market trend often breaks through the support line and resistance line.
This also contributes to the trend in London time.
London fixing is another factor that makes trends more likely.
London fixing means that gold fixing is done when the London market opens.
The price of gold determined by London Fixing is a global gold price indicator, and the exchange rate can fluctuate significantly depending on the price.
The price of gold is also highly related to the exchange rate.
And one thing to keep in mind in London time is London Fix.
This time is the time to determine the so-called “mid-price” (the transaction rate that banks base when trading foreign currencies with customers).
In the case of the United Kingdom, it is set at 16:00 local time.
Since London Fix is a time zone when actual demand sources move significantly, price movements will also be rough.
Therefore, you need to be careful because you may incur a large loss if you trade through the time without attention.
Economic Indicators and Fundamental Analysis
Trading in London time is high-risk high-return
When the London market opens, the exchange rate will move at once according to the speculation of individual investors and institutional investors in each country, following the flow of London fixing and the world economy.
In response to this, London financial institutions are also moving to buy and sell foreign exchange, so there is a high possibility that market movements will become more active.
Not only currency pairs related to the British pound, but also major currency pairs such as the Euro, US dollar and Japanese yen move well.
In anticipation of this, many individual investors buy and sell a large number of stocks with high leverage in order to make a profit in a short period of time, so the market price fluctuates greatly.
Especially at the end of the month, fund managers and institutional investors may make a full settlement in order to reorganize the portfolio used for managing FX investment, and as a result, market may suddenly collapse.
You can think of London time trading as high risk and high return.
Try Low Risk Low Return FX trading
Why the pound (GBP) is so volatile?
The pound is a very popular currency in Forex, but when you look at the volume of transactions in the world, it is by no means large.
This is one of the reasons why the pound’s price movements are volatile.
In addition, speculative transactions are often carried out due to the rough price movements, which makes the price movements even rougher.
Participants in the London market have many sources of actual demand, but there are few actual demands for the pound, and speculative trading accounts for a large proportion.
Therefore, unlike the US dollar and Japanese yen, the adjustment power of actual demand transactions is difficult to work, which also supports the turbulence of the pound price movement.
Since the pound is a currency with a high rate, the principal when trading the pound the amount is large.
This is also one of the reasons why the pound’s price movements are so rough.
One possible reason why price movements are difficult to read is that when creating a currency pair with the pound, the dollar is sandwiched in the form of “GBP → USD → JPY”.
In the case of a cross JPY, for example, if the pound is stronger than the dollar and the dollar is stronger than the yen, the yen will weaken and the pound will strengthen.
Also, if the pound is weaker than the dollar and the dollar is weaker than the yen, the yen will strengthen and the pound will weaken.
However, if the pound is stronger than the dollar and the dollar is weaker than the yen, or if the pound is weaker than the dollar and the dollar is stronger than the yen, it is difficult to read what happens.
This is a major cause of the difficulty in reading the price movements of the pound sterling.
What is Volatility in the Forex market?
Tips to trade during London Time
It is London time when markets of various countries move and trade actively, but what kind of trading method should be used?
Here, we will introduce some points to note when trading in London time.
1. ECB and BOE monetary policy
The policy of the Bank of England (BOE), the central bank of the United Kingdom, have a great impact on the pound.
In particular, the announcement by the Monetary Policy Committee attracts attention, and depending on the content, it may have a significant impact on the GBP currency pair involving the pound.
The Monetary Policy Committee meets 8 times a year to announce the policy interest rate, quantitative easing, etc., such as the ratio of votes for and against rate hikes and rate cuts, minutes, and statements.
So far, the Bank of England has taken quantitative easing measures and austerity measures to stop the economic downturn caused by the Lehman shock.
After that, the British economy was on a recovery trend, but in response to the victory of the referendum on the withdrawal from the EU held in the United Kingdom in 2016, the pound depreciated and the price was high, and what to do about this has been a recent theme.
Regarding this, there was a view that it was necessary to raise the interest rate to curb inflation, but the Monetary Policy Committee held on November 2, 2017 decided to raise the policy interest rate 7 to 2. then the UK policy rate has risen from 0.25% to 0.50%.
According to the BOE’s Monetary Policy Committee Summary, rate hikes will be limited and gradual.
In addition, the policy of the ECB, the central bank in the EU, will have a major impact on the movement of the euro, which is actively traded during London time.
The EU was suffering from deflation and was taking quantitative easing measures.
However, they are now moving to an exit strategy to end quantitative easing.
The ECB has decided to reduce the monthly purchase of government bonds from 60 billion euros a month to 30 billion euros a month from January 2018.
Dragi has said that after reducing the purchase of government bonds to 30 billion euros a month, the purchase will not be terminated immediately, so it is thought that the purchase will be reduced at least once in the future.
Dragi said it may continue to reinvest even after the quantitative easing is over.
In the future, the euro is likely to react significantly to any additional announcements regarding a reduction in the monthly purchase of government bonds.
Currently, it is thought that “at least one additional reduction will be made”, so if it is announced that one additional reduction will be made, the market will react, although it is as expected.
However, if President Dragi withdraws his remarks and discontinues the purchase of government bonds, the market may react negatively and the euro may be sold.
In Forex trading, there are many beginner traders who do not know what kind of strategy should be taken for the announcement of central banks such as BOE and ECB.
Central bank monetary policy tends to have a significant impact on foreign exchange markets over the long term, so be careful about what the central bank announces about monetary policy.
First, think about what the market welcomes and what it doesn’t.
For example, the ECB’s purchase of government bonds has been implemented as a measure against deflation in the first place, and as the EU economy has improved, an exit strategy of “reducing the purchase amount of government bonds” has been started.
If the economy is improving, but the purchase of government bonds is suddenly stopped, there is a risk that the exchange rate will be temporarily confused, especially in London and Europe.
You may create a scenario like this and think about what is a buying factor for a country’s currency or what is a selling factor for that country’s currency.
As mentioned above, the important factor in trading in London time is the “fundamental” factor.
Such information can be received in the news from the Forex company that you opened the account.
Learn about Forex Fundamental Market Analysis
2. Political situation in UK
The political situation in Britain also has a big impact on the pound.
Such as a recent example is the UK’s departure from the EU.
Whether Britain’s exit from the EU is going smoothly has had a big impact on the pound.
For example, in the UK’s negotiations to leave the EU, it is difficult to completely leave the EU at the end of 2020, and when EU officials say that it will continue for a long time, uncertainty about leaving the EU becomes uncertain, hich will increase the sold of pounds.
The pound tends to sell big when government officials, including Prime Minister May, make statements reminiscent of hard Brexit, which prioritizes immigration control and leaves the European single market.
On the contrary, the pound is bought when there is an increasing likelihood of soft-brexit (which limits immigrant acceptance while leaving access to the European Single Market).
In this way, the pound is paying attention to whether the EU exit is progressing, and if so, is it a soft Brexit or a hard Brexit?
The market welcomes leaving access to the European Single Market, so the pound is more likely to be bought when it is more likely and the pound is more likely to be sold when it is less likely.
In this way, by ascertaining what political themes are attracting attention in the market and how they will be welcomed or pessimistic, you can tell if a large number of sells or buys will be made.
3. Economic indicators
Here are some important indicators which you should focus on during London time.
For Pound
- Quarterly inflation report
- CPI
- Unemployment rate / number of unemployment insurance applications
- CIPS Manufacturing PMI
- GDP / Gross Domestic Product
- Retail sales
For Euro
- ECB policy rate announcement
- Quarterly GDP
- Consumer price index
- Purchasing Manager Index
It is not uncommon for Germany’s economic indicators, which are the driving force, to influence the euro.
Therefore, it is necessary to pay attention to the business sentiment index, unemployment rate, retail sales, etc., which are the most influential economic indicators in Germany.
The importance of economic indicators of each country is posted on the website of Forex companies, so be sure to check the ones with the highest importance.
Access to XM’s Economic Calendar for Fundamental Analysis
4. Market Trend of “EUR/GBP”
Currency pairs such as the GBP/USD and the EUR/USD are often traded during London time.
However the main players of London time, the EUR/GBP currency pair has an important role.
The “EUR/GBP” is a currency pair that is not very familiar for traders, but it is a popular combination of currency pairs in Europe, and it can be said that the movement is relatively easy to read among the currency pairs involving the pound.
Since the Euro and British Pound are currencies within the same area of Europe, the price movement is relatively gentle for the British Pound.
It is relatively easy to trade because it is rarely sold or bought unilaterally in the event of a terrorist attack or emergency.
Even if you mainly trade with technical analysis, it can be said that the currency pair is relatively easy to read the price movement, but it is costly because the spread is wider than the major currency pairs such as USD/JPY and EUR/USD.
5. Exchange Rate in New York time
Many investors, including Europeans, will hold their positions after the London market, but after that, many investors will once make a profit before the NY market and start new Forex trading from NY time.
Due to this movement, the exchange rate, which had been moving due to the trend generated since the opening of the London market, settles down.
After that, the entry of each investor after the NY market, and many individual investors aiming for short-term trading get on the flow of the market and high leverage at the same time.
Trends often occur within an hour or two after the NY market and a flow is created, but if there are exceptions such as thin materials or a big announcement coming up, investors will go around and flow is created.
So before the flow is fixed, it tends to fluctuate greatly up and down.
Which is the Best Currency Pair to trade?
Be careful of daylight saving time and winter time
There is a time difference of about 1 hour between daylight saving time and winter time.
Moreover, it does not always switch to the same day every year, so you must check the exact date and time.
If you inadvertently forget to enter daylight saving time and check the market one hour later, it will be difficult to seize the opportunity to catch the trend.
Be careful when switching between winter time and daylight saving time, especially after the beginning of March, as you have the chance to move three times a day after the Japanese market, the London market, and the NY market.
Know the International Forex market sessions
Conclusion
The London market, which has the largest trading volume of any Forex market in the world, accounts for about 30% of the total Forex market.
Of course, the trading will be active during the London time when the London market is open
The point is that the trading of currencies of various countries including the GBP and currency pairs including the GBP and the EUR are active.
In particular, the GBP has long been known as a currency with volatile prices.
With the UK referendum deciding to leave the EU, the GBP is in a good position to sell too.
There are many transactions by speculators aiming for rough price movements, and if you do not trade carefully, it can quickly consume your margin.
London time is a very important time zone for Forex trading, but you should be careful when trading.
