The Trappings of Time Zones for New Forex Traders

timezoneIf you were a stock market trader, your trading times would be defined from the opening bell to the closing bell. Take the New York Stock Exchange for example. The NYSE Opens at 9:30 and closes at 16:00 EST. Monday to Friday, excluding weekends and United States holidays. That is 6 and a half hours of trading time per day. Nice trading hours, although you can add around 2 hours pre-market and  2 hours post market to give the traders a 10 and a half hour working day, and you can see why the poor souls need a weekend off every 5 days or so.

Forex trading on the other hand, has an opening bell that starts on a Monday morning in Asia and ends on a Friday evening in North America. It’s called a 24 hour market and in essence this is mostly true. We also have computer programmed trades or algorithms, which eliminate the daytime and night time effect that us humans have no choice but to factor into our available trading hours. The reason forex trades non stop without any coffee breaks from a Monday morning in the far east, to a Friday evening in New York is because the earth is round (or spherical as the scientists say).

”Forex trading around the clock was not created to give insomniacs something to do at 3 o’ clock in the morning.”

Which brings us to the topic of the trappings of time zones to forex traders and the common mistakes that could be avoided by paying better attention to your own time zone first, and thereafter to the currency pair that interests you for the day.

The first point to note is that the policy makers in each of the different countries prefer to work during daylight hours. By policy makers, we mean Central Bank Governors and their monetary policies. Splitting the main trading zones of the world into three trading blocks we begin with an Asian session, merging into a European session which overlaps and ends with a North American session. This has a bearing on when each country’s Central Bank Governor is likely to announce a major monetary policy decision or influence their own currency which takes place during their daylight hours in their time zone.

alarm-clockEuropean traders have every early morning reason to erroneously believe that that governor of the bank of Japan makes his monetary policy announcements at 3am. That’s not the Tokyo trader’s viewpoint. The Asia traders are enjoying brunch and leisurely watching the Yen rise and fall as the Governor of the Bank of Japan speaks, while the European traders are stressing  ”this is way too much brain power required at 3 am to think straight” in between gulps of coffee, energy drinks and splashing eye drops in their eyes.

So if you are a forex trader, why make life difficult for yourself. It’s a lot cheaper to trade the forex pairs in the time zone you live in, than to emigrate to a country to get more aligned with the forex pairs you want to trade in their daylight hours.

Living in Europe, there is every reason to trade the Euro. All Central Bank policy decisions regarding the Euro will automatically be in your time zone and during your daylight hours. Since you can’t trade Euro versus Euro, choose the next closest major currency to you which would be the Pound or the Swiss Franc and you have found yourself  three non sleep deprived, time zone friendly forex pairs to trade. EURGBP, EURCHF and GBPCHF. Choosing AUD or JPY as a European trader will always give you three o clock in the morning stress, especially if you have open trades overnight. Similarly, we find it fascinating to find new forex traders in Australia and New Zealand placing Asia hour trades on GBPCAD and USDCHF. Way out of your daylight time zone. Stick to AUDJPY, NZDJPY or AUDNZD. Make things easier for yourself.

CONCLUSION

If you are new to forex, or have been trading a while, and the complexities and stress of time zones are keeping you awake at night, consider switching to forex pairs that match your location.

At the Pip Asylum we are particularly liberal with our forex fraternity. We won’t dictate that you cannot trade the JPY  if you don’t live in Asia, we only want you to drop it if it gives you sleep deprived stress. Who wants golf lessons in the dark? Now please get some sleep.

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