Trading Conditions – What a Trader Needs to Know About Them
Trading conditions on the Forex market differ every day, depending on numerous factors. Perhaps this is the reason why Forex trading is so fascinating to many people: no day is like the previous one, with the prices changing at a different speed and for different reasons.
The main reason why trading conditions differ is economic news. Grouped in a smart way, the economic data comes out scheduled in the economic calendar.
The info is grouped on different categories, with first, second and third-tier data based on the market impact. Inflation and central banks interest rate decisions are on the top of the list when it comes to the market impact, while other data simply don’t matter for the way prices move (e.g., Loan Offices Survey in the United States).
Different Trading Sessions
While economic news and data is part of any Forex education process, not only the news moves the market. Market conditions also differ based on the market hours.
There are three so-called trading sessions: Asian, European and North-American. The European and North-American sessions are also called the London and New-York sessions, based on the name of the two financial centers.
The Asian session is the slowest one. The market rarely travels big distances, and the market conditions are slow, ideal for scalping.
Scalping is the trading strategy during which traders buy and sell a currency pair to speculate on the market small moves. Scalpers use bigger volume to trade so that they compensate for the lack of market activity and movement.
By the time that London traders join the market, the trading activity picks up. With London open for business, this is the time when the currency pairs experience great volatility.
That is especially true if important data comes out in the European session, like Unemployment Rate in the United Kingdom or HICP in the Eurozone, not to mention if any of the Bank of England or the European Central Bank announce the monetary policy.
The New York session overlaps with the London session for a few hours. These hours are the most volatile in the Forex market as the most important economic data out of the United States (e.g., NFP – Non-Farm Payrolls) comes out early in the morning during the New York session, so late in the London session.
During the trading year, some dates should be marked on every trader’s calendar. As the financial markets are interconnected, what happens on markets that don’t seem to be correlated, do affect the volatility and price action in the Forex market too.
The quadruple witching is the perfect example. It refers to the third Friday of every month that is the end of the quarter. Therefore, the third Friday in March, June, September, and December are quadruple witching days, in the sense that stock options, stock futures, market index, and market index futures expire, creating huge volatility over the international financial markets. The last trading hour in the stock market in a quadruple witching day creates extreme trading conditions on the currency market too.