Forex traders must come to terms with high risk, extreme market volatility and a variety of unpredictable factors. But can the time of year be a good indicator to consider? In this article, we’ll explore this question to see if and how certain months can help evaluate trades and positions.
What is forex?
Forex stands for foreign exchange, which is a decentralised market where currencies from around the world are traded in pairs. It’s a globally significant process, determining the exchange rates for every currency in the world.
People can and do make money from forex trading, just like any other financial market. By investing in certain currencies and waiting for changing market conditions, traders can profit from fluctuations which increases the relative value of their positions. However, with this opportunity comes the potential for loss and no forex trade is without risk.
Which are the best months to trade forex?
Months with the highest levels of market activity usually present the biggest opportunities for forex traders. That’s because increased activity means more frequent price movements and therefore volatility which traders can benefit from. The more fluctuations, the more opportunity to make (and potentially lose) money.
- January to May: The first quarter of the year (and a bit) is one of the most active periods in the forex markets. The combination of more people going back to work after the holidays and important economic announcements such as national budgets being made across the world creates plenty of opportunity for fluctuations. This period also sees the end of the tax year in the UK and the start of the new tax year in many countries around the world.
- September to December: After summer in the Northern Hemisphere comes another period of heightened activity. This again coincides with more people returning from holidays and many big decisions being made by businesses and institutions in the run-up to the festive period. December is a tricky one to navigate because activity levels can be high at the start of the month, but the festive period is where trading volumes decrease dramatically until the new year.
Which are the worst months to trade forex?
The worst months to trade forex are the ones with the least activity and therefore lower volatility because this means less opportunity for traders to benefit from fluctuations. These months are traditionally during the height of the Northern Hemisphere summer, between June and August. So if you’re looking to maximise your returns over the year, putting most of your effort into the periods on either side of summer is often your best bet.
