The Prime Time for Daily Forex Trading

The Prime Time for Daily Forex Trading

Submitted by adil on Fri, 01/31/2014 - 07:18

The modern Forex market is very flexible and investors can trader for 24 hours a day in any time zone across the globe. The market closes only on Friday, when Japanese market, one of the most important in the world shuts down. However after the gap of one day, the most important European market that is London opens up followed by the New York.

In the context of above discussion, the brokerage companies, banks and investment companies offer most of the trade. Currency dealers, independent brokers and companies that sell and buy currencies account only for a fraction of Forex trading. However, as the more and more currency traders realize how profitable the Forex market is, it will continue to grow and develop gradually but steadily. The average daily turnover of the Forex market is 30 times more than all other markets in USA.

In fact, the Forex market is extremely profitable for currency dealers if you also consider the drive for supply and demand. The currency rates in modern Forex market can experience change in 4.8 seconds as it promotes the free floating system. The Forex market also reflects the growth and stability of all international countries in particular and their economies in general. You need to understand that any transaction within Forex market can lead to more transactions considering the size and volume of the market.

You need to understand how sensitive your portfolio to market changes is in order to become a successful Forex trader. This is especially important for currency pairs as no member of the pair can trade completely independently of the other member. Therefore, if you manage to understand the working and changing of these correlations, you can effectively trade them in your favor and increase your profits.

The Currency Pair Correlations:

The foreign currency pairs exist interdependently for a reason. For instance, you will trade derivatives of the GBP/USD and USD/JPY if you were trading the GBP/JPY currency pair. In this regard, the later currency pair should be correlated to both or any of the earlier currency pairs. Apart from existing in pairs, there are other reasons that will determine the interdependence of these currency pairs. That is, there are currencies that will move in different directions while others will move one ahead the other.

• The Correlation Coefficient:

The correlation coefficient ranges between -1 and +1. When two currency pairs move in the same direction all of the time (100%), the correlation coefficient will be +1. Similarly, if two currency pairs are expected to move in opposite direction all the time, the coefficient will be -1. If the coefficient is zero, it indicates that the currency pairs will move randomly with respect to each other.

• The Correlation Stability:

As various economic factors and global system change frequently, so carry out correlations. Therefore, it is very important for the traders to develop the ability to follow these changes. As correlations change frequently, it is advisable to go through the correlation history for past six months in order to get a better idea about what the average correlation for a particular currency pair is. There are many reasons that force this change most important of which is predisposition of currency pairs to commodity prices, unique economic and political conditions and diverging monetary policies.