I sought to understand the dynamics of the forex market structure by determining what hours of the day have the highest trading volume and volatility. I found there is a gradual rise in volatility and volume from midnight to 3 a.m. EST, which then slightly falls until 5 a.m. EST. Volatility and Volume remain mostly flat until 7 a.m. EST. Both metrics then steadily rise until they reach a peak at 10:00 a.m. EST. Then volatility and volume take a sharp dive at 11:00 a.m. Both metrics slowly cool off and remain flat until a second abrupt peak at 10:00 p.m. EST which gradually levels off throughout the night until the cycle repeats.
At every time of the day there is at least one forex market open. By understanding who is trading when, and how much, one may be able to determine which hours would be best to enable a high frequency trading program in order to take advantage of small moves in these markets and which pairs to trade at what time.
Forex trades on multiple different trading platforms with varying levels of volume on different exchanges at different times. For this reason I chose to download historical trading data from the currency/currency index on TradingView which combines and averages multiple large exchanges volume and price. I downloaded 131 days worth of hourly trading data, for a total of 3,128 hours from July - December of 2021. First all UTC hours were converted to EST hours.
To determine liquidity I sorted and averaged volume by hour for all 3,128 hours. After I found the total average volume of forex trading per day. Next I ran statistical analysis to determine the standard deviation and plotted values accordingly.
To determine volatility I first found the absolute value of the percent change and range per hour for all 3,128 hours. Next I sorted and averaged the remaining values by hour. After I found the total absolute value average percent change and range of forex trading per day. Next I ran statistical analysis to determine the standard deviation and plotted values accordingly.
