Forex trading is a 24-hour market, which means that it is always open for business. However, there are certain times when the market experiences increased volatility, resulting in wider spreads. One such time is at 10 pm, which is when the Asian session begins and the European session comes to a close. In this article, we will look at the reasons behind the widening of forex spreads at 10 pm.
What are Forex Spreads?
Before we delve into the reasons for the widening of forex spreads at 10 pm, let’s first understand what forex spreads are. A forex spread is the difference between the bid price and the ask price of a currency pair. In simpler terms, it is the cost of trading a currency pair. The bid price is the price at which a trader can sell a currency pair, while the ask price is the price at which a trader can buy a currency pair.
The bid-ask spread is the difference between these two prices and is expressed in pips. The spread can vary from one currency pair to another and can also vary from one broker to another. Generally, the tighter the spread, the better it is for the trader, as it reduces the cost of trading.
Why do Forex Spreads Widen at 10 pm?
Now that we know what forex spreads are, let’s look at the reasons for their widening at 10 pm. The first reason is the overlap of the Asian and European trading sessions. At 10 pm, the Asian session begins, and the European session comes to a close. This is a time when there is a lot of trading activity, as traders from both regions are active in the market. This increased trading activity leads to increased volatility, which in turn results in wider spreads.
Another reason for the widening of forex spreads at 10 pm is the lack of market liquidity. Liquidity refers to the ease with which a trader can buy or sell a currency pair. When there is a lack of liquidity, it becomes difficult for traders to execute their trades at the desired price, which leads to wider spreads. The lack of liquidity at 10 pm can be attributed to the fact that most banks and financial institutions in Europe are closed, which reduces the amount of money flowing into the market.
The third reason for the widening of forex spreads at 10 pm is the release of economic data. Economic data such as GDP, inflation, and employment figures can have a significant impact on currency prices. When such data is released, it can cause a sudden increase in trading activity, which leads to wider spreads. Economic data is usually released during the European session, and its impact can be felt during the Asian session, which is why spreads tend to widen at 10 pm.
Tips for Dealing with Widening Forex Spreads
Widening forex spreads can be a cause of concern for traders, as it increases the cost of trading. However, there are a few tips that traders can use to deal with widening spreads. The first tip is to use a broker that offers tight spreads, even during volatile times. This can help reduce the cost of trading and increase profitability.
The second tip is to avoid trading during times of increased volatility. This can be done by checking the economic calendar for the release of important economic data and avoiding trading during those times. Traders can also avoid trading during the overlap of the Asian and European sessions, which is when spreads tend to widen the most.
Forex spreads tend to widen at 10 pm due to the overlap of the Asian and European trading sessions, the lack of market liquidity, and the release of economic data. This increased volatility can lead to wider spreads, which can increase the cost of trading. However, traders can use the tips mentioned above to deal with widening spreads and reduce the cost of trading.