London Is Still King of the Hill for Currency Trading.

Joined : 23 Dec 2007 Posts : 239 Location : Nigeria

Today's commentary is by Sean Hyman, Currency Director and editor of The Money Trader.

Good Day Currency Traders!

Apparently London trades double the currencies that the U.S. does.

The Bank of England just released their latest figures. They reported daily volumes averaging US$1.33 trillion. (That's what the entire forex market traded daily just a few years ago.)

It is believed that the average daily volume for the entire forex market now is about US $3 trillion. Meanwhile, the New York Fed announced their numbers of US$652 billion.

Why London Reigns Supreme in Currencies
London is on top for many reasons. For starters, even with the advent of the euro, there are still quite a few currencies in Europe. Even if you just trade the local currencies like the euro, British pound and the Swiss franc, you would still have a huge volume.

Also, Europeans are more aware of currency fluctuations than Americans are. All 50 states in the U.S. use the dollar. However, countries throughout Europe - some as small as the "states" in America - use different currencies. So Europeans are very aware when one currency strengthens against their neighbor's currency. Whereas Americans generally remain blissfully ignorant of how the U.S. dollar stands up against other currencies around the world, on a day-to-day basis.

Businesses all over Europe have to exchange currencies often. They must exchange currencies when they purchase equipment, make payroll to their offices in other parts of Europe, have mergers/acquisitions, etc. All of this causes the volume to surge.

Then when you consider the huge speculative trading volume that takes place, you can see why London is the "king of the hill" of forex trading.

This is one reason why many currency (aka forex or "FX") traders trade the London session first. They want to take advantage of the huge levels of volume there. Then the U.S. comes in as the second best session to trade. The Asian session follows up in third place.
Why You Should Care that London
Trades More Currencies
So why is this important to the average investor - especially if you happen to live in the United States?

If you know that London has the best trading volume, you know that the best times to trade currencies is between 2 AM EST and 12 noon PM EST. However, the volumes remain fairly high until 5 PM EST. Then they start to drop off as the U.S. trading session comes to an end and the Asian session begins.

The London and U.S. sessions are so huge that they are thought to handle around half of the world's currency trading.

Go for London or New York First -
If You're Looking for Trends

So if you're looking for the most active times to trade when the currency pairs are more likely to trend, then pick the London or U.S. trading sessions. If you're looking to range trade in lighter volume, then you might choose the Asian session.

No matter where in the world you are or what hours you work, there is a way to trade the currency market. This can't be said of any other market.

With businesses "going global" more so all the time, I'd only expect these volumes to continue to grow.

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Making 'Cents' of the Headlines
The Worldwide War for Energy Is Being Fought
on the Oil Fields... for Now

From our Currency Director: Sean Hyman

What's Happening:

There's a war brewing over the world's oil supplies. But it's not being fought on a battlefield (at least not yet). It's being fought in the oil fields.

So who's fighting? On the one side: We have state-controlled energy companies from Russia and Brazil. On the other side: We have publicly traded energy companies from the U.S. and Europe.

Like any war, both sides are battling to assume power. For example, Russia's Gazprom forced BP and Shell to relinquish control over gas deposits which could have supplied Asia with gas for the next five years.

Brazil also confiscated 41 exploration licenses (to reduce competition) once they found an eight billion barrel oil field.

Petrobras shares gained 46% in the past six months, while Gazprom, the world's largest gas producer, advanced 12%. Exxon Mobil lost 4.9%, and Shell dropped 8.6%. London-based BP fell 6.5%.

It's also estimated that between the OPEC countries, Russia, Kazakhstan, Azerbaijan, Turkmenistan and Brazil, these nations are currently sitting on 88% of the world's global reserves (or an estimated 1.06 trillion barrels).

Many traders and investors are starting to dump American and Europe based oil companies for those in Russia and Brazil because of all of this.

Traders are switching to Russia and Brazil because they believe that Exxon and Chevron may record the smallest annual income growth since 2002.

What I Say:

Both Russia and Brazil continue to "strong arm" the U.S. and Europe by revoking licenses and threatening to block projects if they don't hand over gas deposits and majority stakes in projects.
So while U.S. and U.K. production is expected to drop about 2% to 4% a year, Russia is reporting a 29% gain.