The forex day begins in Asia, which is ahead of Europe and America by almost a day. When they open a new day, it’s about 10 PM in London the previous day. At 8 am GMT, Asian traders are almost ready to call it a day, but Europe is awakening. And 9 hours later, Europeans are going home as New York traders begin to make THEIR daily mark. The result is not only a 24-hour day, but changes in liquidity.

When two markets are open simultaneously, there’s a lot of action. More participants, it’s easier to get into and out of positions. Those overlapping hours is when we see most spikes in activity. It also happens as the day begins and traders open positions they’ve waited all night for. And at day’s end, when they want to offload all of the useless ones. Holidays means a drop in activity, and Spring – again – a spike, as people open long-term positions for the quarter or year.

Then, there’s the news cycle. When there’s an announcement about to come out, people will try to pre-empt the market; after the announcement, they’ll be franticly ADJUSTING those positions, or opening new ones. Throughout the day, if you’re trading commodities, you should keep an eye out for what times these commodity futures contracts expire – you can find a table online – and what markets need to be open so you can TRADE those commodities.

Now, a word about overnight swaps. As we said, trading forex and commodities means trading CFDs on forex and commodity FUTURES. These futures contracts expire on a daily basis. To keep a position open, the broker needs to transfer the contract to a babysitter – a Swaps bank, which charges a fee to close and reopen the contract.

That fee is based on the interests charged divided by 360. In forex, this gets interesting. Let’s say you’re planning on leaving a forex position open overnight. Here, you’ll be paying interest on the currency you buy – the base currency in a long position – and GETTING interest on the currency you sell, the counter-currency in this case. When trading on the Euro USD, for example, we see that the FED currently charges 1.75% and the ECB – zero. Clearly, you’ll be making more on the dollar than paying on the Euro, so it’s possible to actually MAKE money on the swap. Unfortunately, most brokers add their fee on top of that and it’s not always smaller than the maximum rate on one of the majors. 

Just remember, though, that we’re talking really small amounts here – it’s your position size times the differential in central bank interest rates divided by 366 days. Not anything to worry about.