The
forex market operates worldwide and
non-stop for five and a half days a week. Every day it moves along with the sun: beginning in Sydney, to Tokyo and then Singapore, through the late Asian afternoon when London and other European centres open just as Asian markets are preparing to close. The European open initiates the heaviest trading volume of the day and by afternoon in Europe, New York opens, followed by Chicago, then Los Angeles. Just as sunset signals the closing of the US market, sunrise in Sydney starts a brand new trading cycle all over again.
By contrast, with the stock and futures markets, one would need access to electronic communication networks (ECN) for pre-market trading, or would have to wait till the markets open – and open sometimes with a gap if there has been news while the markets are closed. Since the Asian session is usually quiet for currencies like the Euro or Swiss Franc, I use this time to do market research, calculate and set up my trades for the afternoon when the European markets open. This gives me ample time to digest the news of the night before and the morning itself, which allows me to anticipate the movements of currency pairs later on in the day.
Unparalleled liquidity
The forex market is the planet’s most liquid market. With more than $2 trillion changing hands every day, traders have no worries about liquidity when it comes to trading any of the big-economy currencies: USD, GBP, EUR, CHF, JPY, CAD, AUD and NZD. This is especially the case when they are paired up with the US dollar – at least 80 percent of foreign exchange transactions have a dollar leg. The London market accounts for almost one-third of the global total daily forex turnover, and thus tends to be the most volatile session of the day, with the majority of forex transactions completed during the London hours due to the market’s liquidity and efficiency. The unparalleled liquidity of forex translates into very little or almost no slippage when you trade during normal market conditions (not during news); there is rarely any discrepancy between the displayed price and the execution price.
Ability to go long or short anytime
Since currencies are always traded in pairs, when you are bullish on one currency, you are bearish on the other – and vice versa. For example, if you are
bullish on GBP/USD, you go long of it by buying Pounds and selling US dollars; but if you are bearish, you can short it by selling Pounds and buying US dollars. You can short a currency pair anytime you want, without any restrictions. This is different from some stock markets whereby short-selling is only allowed on an uptick, so it can be quite tedious and time-consuming for stock traders to have to wait and see the stocks going down while looking out for an uptick before they can short. Being able to go long or short on currency pairs anytime is a tremendous advantage as forex traders are able to profit from both up and down trends anytime, and this translates to a more efficient and instant order execution. This is especially valuable
in the financial markets where time equals money, and even a second’s delay could cost you money.
source :
Grace Cheng
