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Just out of interest, nothing serious but I suppose it might help others who trade EUR/GBPUSD?
I was talking to a fellow trader yesterday and we both were talking about how we got involved involved in forex first before switching to futures. And something that came up was the lack of any real understanding of the volume driving spot fx which therefore drives forex futures.
We all know the importance of the open and the volume that is poured into stocks at the US open etc, but I/we were wondering - does the EUR/USD and GBP/USD actually have an open like the stock market e.g. 8am UK time etc with a big spike in volume? Or does the volume just sort of pick up for the first few hours of trading in the London and US session?
And then we both realised that in all the conversations we've had and all the things we've read, no one has ever provided a definitive answer to this. Large players/people working for institutions seem to keep quiet! The closest I got was talking to a fella from GS who just turned round and said that the euro was basically Germany and that's it. He wasn't wrong either-any news from any other country makes no difference, but get a miss on German economic data and hold onto your hats This was many years ago so was earth shattering at the time. Well, for me anyway...
Can you help answer these questions from other members on NexusFi?
Thanks for the reply. How do you know this for sure? I know the theory, but is it correct? FX has no exchange that opens dead on 8am so why would it spike then if ithe FX pairs are free to be traded 24 hours a day, and liquidity is gradually added as the earlier European traders start trading?
Its pretty easy if you want to know for sure. Just take a long history of 1 hour bar data and calculate the high to low range for each of the 24 hours in day and see which ones are highest on average of x number of years. I'd put decent money on 8am UK being right up there for the instruments in question.
As for the why... Im not sure its important to know the why, just that the phenomenon exists at all is enough to trade from.
Exactly I also wanted to post the same example with the 60min bars and volume.
The real open on my FX-chart is 1 hour before the futures open so it is @ 5 pm ET (at least at my charts from TradeNavigator)
And why is that much volume during the London (or perhaps during the European open), this is easy to explain, because the real economy comes into place, companies pay their bills
Hi there,
Thanks for the reply. I know I'm playing devil's advocate but your answer does sort of show the issue with fx volume. You mention the London open but then also reference the European open being high volume too. So the open is now 2 hours long with no definable minute or 2 of heavy volume which you get at the open of stocka/futures markets. Or do you mean there is a similar spurt of volume at 7am and 8am UK time?
Do you have any access to any interbank liquidity pools to know for sure?
Thanks once again.
First at all, I don't trade FX I just trade futures, but my TradeNavigator data has real-time data for FX and it is a pool of 30+ FX providers (and not just 1) and as I said with the London/European open (2 am CT) a lot of the real economy transactions happen, that's why a lot of volume comes in.
Define your question precisely. Then test it empirically. Simples. Are you trading volume or price action? Assuming the latter then its the price volatility that matters most. Measure it at 7am and 8am over a large sample size, compare and you will have your answer.
Thanks for the reply.
Ah I see the European/London open means the same thing to you-8am UK and 2am CT. Would be interesting to know if those 30+ providers are companies like Oanda and other retail houses as I'm guessing they wouldn't reflect the real heavy institutional volume that is provided in interbank liquidity pools. But that's the thing, who really knows? Do a lot of real economy transactions happen dead on 8am UK time? Can't tell without any sort of volume reading!
This was many years ago so was earth shattering at the time. Well, for me anyway...
