FX Volatility (Report)

Summary

Very much like people, foreign exchange (forex or FX) pairs have unique behaviors and traits that can be observed and studied over time. This may help us to better understand the nature of their price movements. For instance, volatility in a forex pair, captured by using the standard deviation of price movements in percentage terms, expresses the uniqueness of each pair while revealing the general heartbeat of the FX market. While shared patterns become apparent, each pair’s volatility shows distinct characteristics that can be utilized by forex traders. Analyzing these findings may not only broaden your knowledge of the forex market, but also improve your trading methodologies.

Background

Although the forex market is open 24 hours a day from Sunday evening through Friday evening (U.S. time), the activity in a given pair is not consistent throughout the day. To better understand the intraday structure of the price activity, it is important to note that the forex market is commonly divided into four major daily trading sessions: the Sydney session (4:00 p.m.–1:00 a.m. ET*, or 16:00–1:00 ET*), the Tokyo session (6:00 p.m.–3:00 a.m. ET*, or 18:00–3:00 ET*), the London session (3:00 a.m.–12:00 p.m. ET, or 3:00–12:00 ET), and the New York session (8:00 a.m.–5:00 p.m. ET, or 8:00–17:00 ET). However, due to the almost complete overlap of the Sydney and Tokyo sessions, it is usually the Tokyo, London, and New York sessions (referred to as the Asian, European, and U.S. sessions) that are the focal points of trading activity.

 

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