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easyMarkets’ Fixed Spread vs Market Volatility

Fixed spreads help traders know their bottom line i.e. their spread cost, regardless of market conditions. No matter what the market’s liquidity or volatility is, easyMarkets spreads remain stable. Even during Bitcoin’s historic bull run, when it reached $20,000 – easyMarkets not only continued offering the cryptocurrency but kept its spreads unchanged.

Volatility in the forex market has become commonplace and isn’t limited to news events. While variable spreads may be beneficial during quieter market times, fixed spreads are ideal for volatile market conditions5, which just also happen to potentially provide more opportunities to take advantage of.

Unfortunately, variable spread accounts can make news trading very confusing because of how wide the bid and ask fluctuate. By using a fixed spread, traders may approach news trading as they would any other market condition.

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Volatility and Seasonality in Forex Markets

Volatility is the ability of the current price to change. When the market is flooded with sufficient demand and supply, price volatility is highlighted. Foreign exchange market transactions are constantly changing the trend of currency prices (for example: if all sellers’ orders are bought at the price of 1.37541, it will cause the buy price (Ask) to rise until new sellers appear, such as at 1.27542. price). So in general, the wave of the price depends on the mutual game between buyers and sellers.

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Ascendant Wave

Next, let’s look at a simple example of how a market wave is formed and why it occurs. (Here we want to be clear, in fact, the formation of market waves, in reality, is more complicated than our example. Our task now is to introduce the volatility of the market with the help of a simple model. If you want to learn more about the stages of market waves in detail, you can find volatility analysis and Elliott wave theory in the recommended literature) First in the example, you can find a supply and demand equilibrium price at 1.37500. Suppose there is a new buyer in the market at this time.

These sellers place their buy orders (long positions) and demand increases accordingly. Each buy order results in a small increase in price, and if there are many such long positions in the market, the price will continue to increase. At this point, other traders will see the price climb on their monitors and think that the uptrend has begun. Then traders who got this information immediately turned into buyers and bought at the current price. That’s how rising market demand begins to push prices up. Such a phenomenon is also known as an “Ascendant Wave”.

Demand will eventually be offset in the market, so each time the market demand is limited. There will also eventually be fewer buyers in the market. Some traders who would like to buy will give up buying when they see that the market price has risen above their expectations. It is worth noting that forex traders are usually short-term operators, and if the currency pair they buy achieves the expected return, they will close their positions. So these traders will start selling their currency pairs at this time. The whole process will first lead to a decline in market demand and then an increase in market supply. The price increase at this point is slowed to a halt.

The slowdown in the price increase is displayed on the trader’s trading monitor, and they immediately act to sell the currency pair. Whether selling a currency or hedging a currency, traders will increase orders to sell a currency pair, which will cause supply to rise and eventually exceed demand, at which point prices start to fall.

Such a process will continue to appear in the foreign exchange market. Therefore, this also leads to large and small market waves (the size of the fluctuations depends on the mutual game between buyers and sellers), and these large and small market waves form trends (price trends). We will discuss trends in future information.

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The seasonality of Forex market

From the above information, it is now clear that market waves are directly dependent on traders’ trading operations. Therefore, the foreign exchange market also has a certain seasonality. Due to different trading hours in different regions, market volatility will be affected. The trading time in different regions is roughly divided into the following blocks (the time in different regions is marked according to the time zone UTC/GMT):

  1. Pacific
    • Wellington – from 20:00 to 05:00
    • Sydney – from 22:00 to 07:00
  2. Asia Region
    • Tokyo – from 23:00 to 08:00
    • Hong Kong, Singapore – from 00:00 to 09:00
  3. European region
    • Frankfurt, Zurich, Paris – from 07:00 to 16:00
    • London – from 08:00 to 17:00
  4. USA
    • New York – from 13:00 to 22:00
    • Chicago – from 14:00 to 23:00

As you can see, some regions have overlapping trading hours, and this is the time when most traders are operating in the market. This is the time when the market is usually the most volatile. We say “usually” because there are some exceptions. For example, some regional governments will intervene and shut down trading platforms; some regions may be in the middle of a holiday, at which time the volatility of the foreign exchange market will be weaker than usual. By the same token, volatility in the foreign exchange market may also be amplified by certain macroeconomic factors.

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Other seasonal rules of Forex market

In addition to the 24-hour fluctuation rules mentioned above, there are other seasonal rules in the market. For example, the market volatility in the middle of the week (Wednesday, Thursday) is usually larger than that on Monday or Sunday; the market volatility in the middle of each month is also larger than the first and last days; Market volatility is weaker in summer than in winter (because traders sometimes take vacations too). However, we must understand that there are no hard and fast rules in the market. As an example, the first Friday of every month is the day the US announces macroeconomic data (such as job market data). This makes the first Friday “non-trivial”: the market usually changes rapidly and strongly after news spreads, which is why some market laws don’t always apply. Traders should always take effective measures to deal with market changes based on the analysis of different environments.

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