Photographer: Craig Warga/Bloomberg

FX Trader Seeking to Beat Your Peers? Set Your Alarm For 3 A.M.

Deutsche Bank says for currency traders, nighttime is the right time.

As currency markets get upended by high frequency firms in search of a nano-second's edge, it's an established notion in the industry that timing is everything. Now Deutsche Bank AG has found a low-tech way to put that principle into practice: Get up at three in the morning.

This anti-social recommendation rests on the idea that time of day holds great sway over the behaviors of major world currencies — a conclusion from calculations drawn up by the firm's strategists Daniel Brehon and Nicholas Weng. They've identified repeating patterns that stand firm across markets and timezones and can, the pair say, help traders predict currency behavior and mitigate spread costs.

Some of these patterns shouldn't surprise. Volatility is highest for the EURUSD pairing at the London and New York opens, while for AUDJPY it spikes at the start of New York and Tokyo's days. Yet their finding that "currencies tend to depreciate during daylight trading sessions in their own time zones," offers less obvious and potentially more actionable returns.  

People systematically trading currency crosses can locate more favorable bid or ask prices if they're sensitive to timings, they say. "Correct versus incorrect intraday timing may make the difference between paying twice the effective spread (if your expected intraday return is negative) versus paying zero or even receiving effective spread (if your expected intraday return is positive)."

Deutsche Bank


If timed correctly, the spike in the dollar versus European currencies during the London session — and its reversal during the New York trading session — can be worth 2-3 basis points in each direction, they say. That's a margin that can exceed spread costs for the more liquid currency pairs.

"Trading session returns are logical and consistent across time zones, giving us a high degree of confidence that intraday timing does matter."

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