What Is The London Fix & How It Affects FX Volatility?

This video explains what the infamous London Fix is and how you can use it in your trading.
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We have a quick question here from Venter saying they want some more information on the London fix, and how it can likely affect the FX market when they are holding specific trades. So thanks for the question Venter.

To start, let’s look at exactly what the London fixes. Now. They are a few fixes actually throughout the day. You don’t only get the London fix this actually a Tokyo fix in the New York fix. And then of course, the infamous London fix. But as the bulk of the day’s trading volume usually runs during the London session, the London fix is usually the more closely watched and the more significant one.

Now the London fix also known as the Reuters, or sometimes the WM fix is basically the time when the daily benchmark writes is set for the 21 major currencies and is done at 4 p.m London time.

Now, remember that big companies, even pension funds, money managers hedge funds, all of them place currency transactions for various reasons with banks, many, if it’s a company in the US, for example, and they need to pay salaries to a branch in the UK, and they want to convert dollars to pounds, or maybe, you know, it’s a pension fund in the UK, it wants to buy European assets as part of their portfolio. And they would need to convert their pounds to euros, all of these transactions need a benchmark rate to quota. And the benchmark rate is usually called or decided every day at the fix. So how the fix is calculated is, it’s basically looking at all the various transactions, all the buy transactions, all the cell transactions that goes through a very short 60 minute window at 4 p.m.

So they will basically look at all the orders for the 30 seconds before 4 p.m until 30 seconds after 4 p.m. And then the average of all those orders, whether it’s buy and sell orders, that will be used as the benchmark right for the day for those particular currencies. So, with all the transactions going through every day at the London fix, and it’s very natural to see some volatility pick up during the time. And whenever we see a pickup in volatility of course that can create noticeable moves in the currency markets.

Now, keep in mind the FX market is massive. So it usually takes really, really big orders to really cause a very big move in the price and we actually did a video I think earlier this week on how some bank traders manipulated the market during the London fix. So for more info on that, you can just catch that in the video library.

So what should you do with this info as a retail trader, you should just be mindful of the possibility of an uptick in orders at the 4 p.m London time fix. This will help you not to, get caught off guard if you see any major sudden moves in the market, especially ones that doesn’t have any fundamental news flow or catalysts behind it.

The fix might create price action swings in the short term, but it won’t necessarily change the day’s overall sentiment. So these moves can usually be faded to a large extent, and to basically reengage currency pays a more attractive levels if the opportunity arises. And of course, it’s in line with the sentiment that you want to be trading in. And but keep in mind that this shouldn’t form a major part of your analysis.

It’s good to know it’s a good thing to know a good thing to keep in mind as something that can affect your trades. And but it shouldn’t ever alter the course of your overall fundamental analysis.

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