When to Buy or Sell Currencies Across Boundaries
Overview of Forex Basics
The actual definition of Foreign Exchange is the concurrent transaction of one currency for another. The actual Foreign Exchange Market, or Forex as it has come to be known, operates 24 hours a day, between Monday and Friday. Whilst there is no central exchange, or trading location, the interbank market involves utilizing the fluctuations of different currency rates around the world to make a profit. The prime movers in within Forex tend to be the major banks, insurance companies and most of the large corporations. Nevertheless, since the advent of the internet, there is plenty of room within the Forex market for the individual player – you and me.
When you buy or sell currencies to begin with you will find it quite a struggle to keep all the balls in the air. It will not always be like this, however, and will get easier with time. When you buy or sell currencies most of the trading is done through the electronic networks and by telephone. In fact, the Electronic Communications Network is usually referred to as ECN. ECN brokers provide Forex traders with a platform whereby they can enter into transaction that involve when to buy or sell currencies. Forex traders can trade in complete anonymity because all dealings are done through the activity and name of the Forex ECN broker.
Every Day is Different
This is quite true: when you buy or sell currencies you really will be challenged with something new each day as the Forex market is so speculative you really don’t know what you will be getting involved with each day. There are lots of different Forex trading strategies but, one particular strategy that experienced traders often take advantage of is the lag between markets. Basically, when you buy or sell currencies you will come across a slight variance between the actual conversions, caused by time lags which can, in turn, affect the trading value of these currencies.
Arbitrage
This particular strategy involves multiple currency trading. When you buy or sell currencies between countries there is often a discrepancy where the value in one country could well fall before it crosses another border. Using EST time zone timings, consider the Forex trading day begins at 8am in New York and closes at 5pm EST; opens in Tokyo at 7pm and closes at 4am EST; opens in Sydney at 5pm and closes at 2am EST; then opens in London at 3am and closes at 12 noon EST. During these 24 hours of trading, New York and London overlap for a while, as does Sydney and Tokyo, as well as London and Tokyo. The best time to trade on the Forex markets is when they are most busy – and when they overlap country borders. This is when there is likely to be a discrepancy between the values of one denomination in relation to another.
Arbitrage involves purchasing currencies on the Forex market where the price is lower whilst, at the same time, selling currencies in another country where the price for that currency has taken a dip. This is all to do with the time zones – Britain, after all, is about 6 hours ahead of the US but is 7 hours behind Singapore and Sydney. So, for instance, if the GBP falls against the USD the effects are unlikely to be felt in the USA for several hours. When to buy or sell currencies involves knowing that you can now purchase in GBP and sell in USD, relying on a lag between the two time zones before the market plays catch up. This is where the profit lies.
