Tuesday, November 07, 2006

The 24 Hour Forex Market

The chart shows the last day's trading in Globex Australian Dollar Futures. I sold my position on Sunday evening when the market seemed like it might be beginning to trade down. It's good that I did because around 2am EST the price collapsed and my stop would have been hit. Just before 5am though the market began to rally. Note that these times are 7am and 10am in London, the world's biggest foreign exchange market. Currently the price is above my sale price...

This shows why this market is best for either hedging or a very small level of speculation for overnight trades, or for daytrading, though often the big moves are happening in the middle of the night for US traders. Globex futures allow 80:1 leverage in Australian Dollars and some spot currency brokers allow larger levels still. This is where naive traders can quickly lose large amounts of money by being tempted to leverage too large positions on a seemingly small margin deposit. I'm definitely going to continue to step very gingerly in this market.

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