EUROPEAN SESSION (LONDON): 2 A.M.–12 P.M. EST

London is the largest and most important dealing center in the world,
with a market share at more than 30 percent according to the BIS survey.
Most of the dealing desks of large banks are located in London; the majority
of major FX transactions are completed during London hours due
to the market’s high liquidity and efficiency. The vast number of market
participants and their high transaction value make London the most
volatile FX market of all. As shown in Figure 5.3, half of the 12 major
pairs surpass the 80 pips line, the benchmark that we used to identify
What Are the Best Times to Trade for Individual Currency Pairs? 67
volatile pairs with GBP/JPY and GBP/CHF reaching as high as 140 and
146 pips respectively.
GBP/JPY and GBP/CHF are apt for the risk lovers. These two pairs
have an average daily range of more than 140 pips and can be used to generate
a huge amount of profits in a short period of time. Such high volatility
for the two pairs reflects the peak of daily trade activity as large
participants are about to complete their cycle of currency conversion
around the world. London hours are directly connected to both the U.S.
and the Asian sessions; as soon as large banks and institutional investors
are finished repositioning their portfolios, they will need to start converting
the European assets into dollar-denominated ones again in anticipation
of the opening of the U.S. market. The combination of the two
reconversions by the big players is the major reason for the extremely
high volatility in the pairs.
For the more risk-tolerant traders, there are plenty of pairs to choose
from. EUR/USD, USD/CAD, GBP/USD, and USD/CHF, with an average
range of 100 pips, are ideal picks as their high volatilities offer an abundance
of opportunity to enter the market. As mentioned earlier, trade between
the European currencies and the dollars picks up again because the
large participants have to reshuffle their portfolios for the opening of the
U.S. session.
68 DAY TRADING THE CURRENCY MARKET
FIGURE 5.3 European Session Volatility
For the more risk-averse participants, the NZD/USD, AUD/USD,
EUR/CHF, and AUD/JPY, with an average of about 50 pips, are good
choices as these pairs provide traders with high interest incomes in additional
to potential trade profits. These pairs allow investors to determine
their direction of movements based on fundamental economic factors and
be less prone to losses due to intraday speculative trades.