Forex Fixing

Forex fixing is a phenomenon which takes place daily on the open auction providing an access for all the players regardless of their significance and the amount of money offered by them to trade. There is no anonymity as all the prices of buyers and sellers are available on screens.

The essence of fixing manifests itself in determining rates by normally finding a rate that balances buyers to sellers. So, the equilibrium is determined by the law of offer and demand between participants. Such a process occurs either once or twice daily at defined times. The monetary exchange rate fixing is carried out by the national banks of each country participant which use the fixing time and exchange rate to evaluate behavior of their currency. The first and most important fixing takes place at 8:55 pm Tokyo time. Another fixing occurs at 4 pm London time. As far as the European Central Bank is concerned, it sets currency fixing in Frankfurt at 2:15 pm Frankfurt time. The ECB observes the spot rates in the interbank market in which it also participates. After the observation the traders of the ECB put their heads together to decide how to set the fixing.

Fixing provides reference levels which have great importance for Europe. Monetary fixings done in Frankfurt are applied to as a starting point for the daily revaluations of positions at the end of each day. Besides, they have validity and are used as the basis for the monetary agreement between banks and customers. These agreements are executed by banks in the following ways:

1)According to the fixing. This way gives the best price and is used in the interbank transactions

2)When there is a spread in 20 pips. This is an improved corporate spread designed especially for major customers.

3)When there is a spread in 40 pips. This method is taken into account while dealing with minor customers.

Customers, as a matter of fact, try to agree upon the best suitable spread with their banks.

Countries peg their currencies on Forex on various reasons. Pegging controls inflationary tendencies, creates demand because of stability, encourages foreign investors. Among pegging strategies we can distinguish

1)Hard pegs – the currency is bound by agreement.

2)Intermediate – from soft pegging to tightly managed “floats”

3)Floating – freely managed or freely floating against other currencies driven by supply and demand.

Pegging of an individual country’s exchange rate or fixing is usually done to control the country’s inflation. But it can also exert an adversive effect of slowing growth or even curbing the country’s productivity. Moreover, Forex fixing by individual countries can lead to serious financial crisis in their economics which proves its unsustainability in the long term. Devaluing or revaluing a currency shows a disability of a government to support the high value it has pegged its currency.

When applying to Forex trading one should have a clear cut idea how the rate changes influence the market. Every trader should be aware of turbulence times before the fixing of rates which lasts for about 15 to 30 minutes. During these minutes there can appear sharp turning of the market direction for a particular currency pair. That is why it is not preferable to trade at this very time because it is next to impossible to predict where the market will trend after these rate changes have occurred.