When people discuss the potential benefits or advantages of delving into the forex market, factors relating to timing and the hours of the market are often mentioned. There are other advantages as well, such as high liquidity, a low number of significant currency pairings, and other elements that make the market easier to navigate than an ordinary stock exchange. But in this post I want to discuss some of the timing-related factors that make the forex market appealing to so many.
The most significant way in which timing comes into play in the forex market is with simple regard to the market hours, frequently mentioned among benefits of currency trading. Simply put, forex can be traded 24 hours a day and nearly seven days a week, which means the market is just more accessible than any stock exchange on the planet. With exchanges typically open for set hours of operation that comprise an ordinary business day, there’s a constricted nature to stock investment that doesn’t exist in forex.
This is particular interesting to private investors who wish to conduct trades as a side job or long-term strategy, as opposed to in a day-trading environment. For many individuals dealing with the requirements of an ordinary day job or regular work or school hours, it’s nearly impossible to manage a typical stock portfolio that requires your time during business hours. Forex, on the other hand, can be addressed at any time and is thus more inclusive, in a sense.
The 24-hour nature of the forex market also carries a strategic benefit for those who are able to take advantage. This is because while the forex market is open, different stock exchanges around the world will open and close in turn, and the open-market overlap during which two exchanges are open at once can lead to higher volatility in forex. Countless factors influence the values of different currencies, but the performance of an economy or a nation’s stock exchange overall can affect change fairly efficiently.
There are a few examples of major stock exchanges that overlap over the course of a given day, and provide opportunities for forex traders by doing so. Markets in Sydney and Tokyo overlap for several hours each day; Tokyo briefly overlaps with London; and for about three hours each day, London and New York exchanges are both open, making for an appropriate time to monitor the popularly traded Euro/U.S. Dollar currency pair.
The hours and timing elements to forex trading should also inspire caution. Because there is essentially constant activity, with innumerable traders all over the world looking to take advantage of trends, the currency markets react swiftly to news. Thus, if you’re not especially hands-on, or even if you’re operating with slower software or through a slower service, you can easily execute a trade too late to take advantage of whatever shift in prices initially inspired the trade. For this reason, stop loss and take profit boundaries are recommended for trades, so that you can automate how much you’re willing to risk, or when you want to take your gains and get out.
Ultimately, timing is important in any sort of financial trading. But the various unique traits of the forex market make it necessary for traders in this area to be even more mindful of the hours at which they do business.
Guest Article submitted by Brian Oliphant