Why is the Asian session such low volume? | Forex Factory

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Why is the Asian session such low volume?

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  • #1
  • First Post: Edited 12:28am Jul 10, 2010 12:09am | Edited 12:28am
China has the highest population in the world BY FAR so why is the Asian session so thin on volume. I don't get it

Prob a stupid question but one I don't know the answer to all the same.
Time hides Nothing
  • #2
  • Jul 10, 2010 1:41am Jul 10, 2010 1:41am
Quoting CindyXXXX
China has the highest population in the world BY FAR so why is the Asian session so thin on volume. I don't get it

Prob a stupid question but one I don't know the answer to all the same.
population has nothing to do with currency market,india is second largest populated country but they dont even have a currency exchange.
  • #3
  • Jul 10, 2010 7:15am Jul 10, 2010 7:15am
It's actually a good question, but because of China's trade volume rather than population. The payment for all of those exports has to get converted back to Renminbis.

I'm going to venture an educated guess that it's the location of international banks, rather than population or trade volume, which accounts for regional Forex volume. London has the highest number of international banks, thus London has the highest Forex volume. New York is second, Tokyo is third.

Rob
  • #4
  • Edited 7:37am Jul 10, 2010 7:24am | Edited 7:37am
London has always been seen as a major financial centre and in recent years has slowly taken over from NY.

http://www.weforum.org/en/media/Late...eases/PR_FDR09

London has some distinct advantages compared to for example NY and HK. It is fairly central so London based banks can take advantage of the time differences with NY and Asia. Bankers and traders like to live in a decent place and London is a good place to be. Thirdly London has some great tax advantages over especially NY and HK. Fourthly, for years London had an "understanding" regulator. And now of course the government here has lowered the TC to the lowest of any of the G20. The future for London looks definitely good. London has always been seen as independant, it is fairly easy for foreign banks to base themselves here and for foreign traders to get work permits, unlike the US. And lastly, the infrastructure is here plus it is easy to get anywhere fairly quickly. And of course there is history, London has been part of the world finance for hundreds of years.

My favourite session in trading is watching the Franky Fake, trade the LO, watch the US open, LC and NY close. That's where the volatitily is. 60-80% of the ADR happens during London. The 2 largest currencies, USD and EUR are traded where needed and London overlaps them both quite nicely.

And as to China, their exports are paid in EUR and USD, for them to trade them they need the EUR/USD market to be there so again London is where they go. Sydney has seen major growth in the last decade on the back of China's success.
  • #5
  • Jul 10, 2010 9:02am Jul 10, 2010 9:02am
cloggie - good stuff, thanks.

Rob
  • #6
  • Jul 10, 2010 4:32pm Jul 10, 2010 4:32pm
Quoting CindyXXXX
China has the highest population in the world BY FAR so why is the Asian session so thin on volume. I don't get it

Prob a stupid question but one I don't know the answer to all the same.
China may have the largest population but their GDP is still only 5 Trillion.

1. U.S. : 310 million people = 15 trillion gdp
2. Japan: 130 million = 5.1 trilion gdp
3. China: 1.3 Billion = 4.9 trillion gdp

The production/efficiency of China is just not there yet for a nation of 1.3 Billion people. People need to develop skills, education, have some form of market economy, develop capital markets, respect for property rights/contracts, in order to have a high GDP per capita ( per person).

Asian session has low volume for a number of reasons:

1. The Major financial centers are still New York, London, where most of the transactions/order flow go through there because those are the most highly traded currencies. USD + European Union GDP = 30 Trillion compared to China's 5 Trillion. And besides, China doesn't have a floating currency. Japan is a big Asian financial center, but that is the only Asian currency (JPY) that has a huge economy + Free floating currency. And also Japan has been stagnating for about 15 years or so now.
2. Low volume hours tend to stay low volumes because if a large order needs to go through they market participants tend to wait for london/new york session where the order flow will have less of an impact on prices, so they hopefully get a better fill.
3. China does have large foreign exchange reserves, and they are active players in the forex market, through managing their reserves and such, but their currency is not floating. They also have some draconian capital controls. (They don't like a lot of speculator hot money flowing into their economy)

So in summary for a forex session to have high volume you need:

1. Currencies that are backed by Large GDP's
2. Floating exchange rate so the market can decide what the rate should be.
3. Allow capital to flow relatively freely between countries

China has the first but not the other two.

On the other hand the london/new york session has USD, EUR, GBP, CHF, CAD, which fulfill all of the above requirements. While the AUD, NZD markets may be closed most of the order flow still goes through the london/new york session because that is just where the liquidity is.
Private message me for a link to my order flow website.
  • #7
  • Jul 10, 2010 5:56pm Jul 10, 2010 5:56pm
[quote=CindyXXXX;3863820] so why is the Asian session so thin on volume. I don't get it

[quote]

Because I'm napping then.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #8
  • Jul 10, 2010 6:30pm Jul 10, 2010 6:30pm
Quoting grkfx
3. China does have large foreign exchange reserves, and they are active players in the forex market, through managing their reserves and such, but their currency is not floating. They also have some draconian capital controls. (They don't like a lot of speculator hot money flowing into their economy)
Are you sure a floating currency is so important? That implies that a majority of currency trading is speculative by hedge funds and retail traders. I suspect the vast majority of all currency exchange is done by banks (central or otherwise), for which a floating currency isn't necessary.

Rob
  • #9
  • Jul 10, 2010 6:46pm Jul 10, 2010 6:46pm
On a side note here, the more westernized and "efficient" a nation becomes, the more unemployment it faces which leads to more poverty, disease, crime and government spending. And mind you, India is riddled with poverty as it is.

The reason for this is that westernization leads to automization of all but the most rudimentary of jobs. That is, if they haven't become completely outmoded by the changing trends within that nation. Therefore, countries with enormous populations are always facing dilemmas on this issue. Well fed, productive and reasonably happy population or hardcore development with full embrace of capitalism and its mile long list of shortcomings?

There is one nation which stands out regarding its policies on this issue- and that is Thailand. It sports the lowest unemployment rate in the world at a consistent figure scoring below 2% with a tendency to contract. There are lots of poor people in Thailand but everybody has a job to go to and nobody goes to bed hungry. They also have the richest and most beloved king on the planet, with a whopping net worth of $30bn and a glass eye, but that is just a fun fact.


B
  • #10
  • Jul 10, 2010 7:38pm Jul 10, 2010 7:38pm
What time does the bank open in your neighborhood?
  • #11
  • Jul 10, 2010 7:44pm Jul 10, 2010 7:44pm
Quoting Rob Mondave
Are you sure a floating currency is so important? That implies that a majority of currency trading is speculative by hedge funds and retail traders. I suspect the vast majority of all currency exchange is done by banks (central or otherwise), for which a floating currency isn't necessary.

Rob
Well I assume the reason he was asking the question was to gain some knowledge/background information about the forex market to become a better speculator. That's why many of us are here for right?

There is absolutely a lot of speculation in the currency markets. Big and small hedge funds do it, banks do it with their own capital. More medium term investors like pension funds, endowments, insurance comapnies, asset managers etc generate flow as well. You throw in the corporations looking to complete transactions and hedge their exposure and there in the game as well. Throw in some central banks that are speculating or managing their reserves.

You don't HAVE to have a floating currency, but without a floating currencies there would be no major forex market(black market would still exist), no forexfactory.com, etc. Corporations and hedgers need liquidity to get their orders filled, trying to match orders between them gets really messy and the bid/ask spreads can widen a lot. That is where speculators come in and fill the liquidity void. BUT if the currency is not floating there would be no large amount of speculation because the speculators could not get in and out of their positions easily. Go look up a chart of USD/CNY and then a chart of EUR/USD. Making money in EUR/USD is far easier because it is floating and not subject to fixed exchange rates or a heavily managed float like the Chinese Yuan. Now if you really wanted to speculate on the Chinese Yuan you could do it, but it will be with less liquid means, high spread means. Less liquidity means no major volume because there is no speculator presence like you have in EUR/USD, USD/JPY etc.

The forex market that we know today came about after many countries abandoned the gold standard and switched to floating exchanged rates in the 1970's. That's why you hear about all those old time traders making money in currencies back in the late 70's, 80's and 90's. You don't hear anyone from before then because there wasn't any major opportunity to profit from the fluctuations.
Private message me for a link to my order flow website.
  • #12
  • Jul 10, 2010 7:50pm Jul 10, 2010 7:50pm
Don't forget about Europe with most of the Financial activity centered around Frankfurt. They are in the same business time zone as London so that also accounts for a lot of the London activity.
  • #13
  • Edited 8:24pm Jul 10, 2010 8:09pm | Edited 8:24pm
Wasn't expecting so much activity thanks everyone

I understand the main financial districts of the world are London and New York but my question wasn't "why is the moost volume transacted through New York and London based exchanges,,,

The question was more about - China with such a large population, you would think there would be a lot more action in the Asian session, simply because these people are awake at these hours, not necesarily profit motivated traders but big business exchanging their international profits to their home currency or just normal import an export deals.

I think I will need to read the above posts agains, this may have already been answered but I guess someone grkfx it up the best saying that when large orders need to be filled these people will wait for the liquid London and NY sessions so as not to push the price against themselves.

Quote
2. Low volume hours tend to stay low volumes because if a large order needs to go through they market participants tend to wait for london/new york session where the order flow will have less of an impact on prices, so they hopefully get a better fill.



Still i find it interesting.
Time hides Nothing
  • #14
  • Jul 10, 2010 8:28pm Jul 10, 2010 8:28pm
All the major market moving news is released in the London and NY sessions.
Time hides Nothing
  • #15
  • Jul 10, 2010 10:39pm Jul 10, 2010 10:39pm
Quoting grkfx
There is absolutely a lot of speculation in the currency markets.....

..... BUT if the currency is not floating there would be no large amount of speculation because the speculators could not get in and out of their positions easily.
http://en.wikipedia.org/wiki/Foreign_exchange_market

The SPOT fx market is almost entirely speculative. Non-floating currencies can be moved around through swaps, which, if Wikipedia is right, is something like 175% the size of the spot fx market.

The spot market is thin in Asia because it is so small compared to the market times when the dominant currencies (USD, EUR, GBP) trade AND when the dominant traders trade (see article Table) - "The ten most active traders account for 77% of trading volume, according to the 2010 Euromoney FX survey."
"If The Fool persists in his Folly he will become wise." - William Blake
  • #16
  • Jul 10, 2010 10:45pm Jul 10, 2010 10:45pm
I liked Cloggie's post. Not sure if one key item came though clearly though: Trust.


If you're trading big volumes and perhaps banking big volumes you need to trust the rulers to keep your operation safe. So you want stability. You want rule of law. You want reliable openness. You want low corruption (or very manageable corruption). And after you get all of that you want low costs (after you take into account the costs of any potential issues).

Do you trust the Chinese government?
  • #17
  • Jul 11, 2010 12:54am Jul 11, 2010 12:54am
Quoting kiwi_trader
I liked Cloggie's post. Not sure if one key item came though clearly though: Trust.


If you're trading big volumes and perhaps banking big volumes you need to trust the rulers to keep your operation safe. So you want stability. You want rule of law. You want reliable openness. You want low corruption (or very manageable corruption). And after you get all of that you want low costs (after you take into account the costs of any potential issues).

Do you trust the Chinese government?
It's not the gov't it's the banks although in China the distinction is not so clear. These big banks trade with each other and they develop business relationships with each other and yes, that includes Chinese banks.
  • #18
  • Jul 11, 2010 7:23am Jul 11, 2010 7:23am
Quoting grkfx
Well I assume the reason he was asking the question was to gain some knowledge/background information about the forex market to become a better speculator....
You misunderstood my question. I wasn't asking about the relevance of a floating currency to retail trading, I was asking about its relevance to currency exchange volume, which is the point of the thread. We on this forum need floating currencies, but commercial banks exchanging currencies for business transactions don't.

But thanks for the history lesson and the back information, you've shown us all that you're the smartest in the room.

Rob
  • #19
  • Jul 11, 2010 7:43am Jul 11, 2010 7:43am
Quoting CindyXXXX
....
The question was more about - China with such a large population, you would think there would be a lot more action in the Asian session, simply because these people are awake at these hours....
....
large population doesnt necessarily equate to large FX transactions &/or large amount of traders.

also, dont forget the Chinese (banks & retail traders etc) can trade outside China business hours, much like we traders can trade anytime we want.

my speculations ('speculation' because im not very sure/certain):
-Chinese Yuan is still controlled by the government
-China is still a 'closed' economy in a way (im referring particularly to how its government operates)
-not a large percentage of Chinese population isnt financially literate/savvy enough /isnt financially literate/savvy yet. so not enough to create significant 'action' as u are expecting
-the Chinese government may have restrictions (trading related)


u know what, u have an interesting question.
maybe when the time is right, we will have a high volume Asian session in the future...
Asia has a large population, there a huge amount of people who are not yet that financially literate (my country's people is just 1 example)
if that happens, we have 3 major sessions of HIGH liquidity
  • #20
  • Jul 11, 2010 8:17am Jul 11, 2010 8:17am
I can't find an updated BIS distribution yet, it is due this year so here is the last one:
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