Differences

Other, more practical, differences exist between emerging market currencies and their G7 currency counterparts. One thing to take into consideration is a currency pair’s peak trading hours. Although the major currency pairs are primarily traded in the European and early New York sessions, emerging market currency pairs have more fragmented and specific prime trading periods.

For example, because of its London ties, the South African rand tends to trade most heavily during the London session hours, as well as the early New York session. The rand has a whopping 871-point (pip) average daily range — similar to the British pound (GBP), which once had a heavy influence in the country.

The Hong Kong dollar, by comparison, has no preferred trading time because the currency’s value is restricted within certain boundaries set by the Chinese monetary authority. As a result, throughout the entire 24-hour forex trading session, the HKD will rise and fall, generally in a well-mannered and gradual fashion, within a narrow 25-pip range. This kind of movement will likely suit more conservative traders with lower risk tolerance and smaller account sizes.

By comparison, the more volatile Mexican peso has a 546 pip average daily pace, making it more appropriate for experienced traders who are comfortable with higher risk; smaller traders can easily find themselves in a margin call situation. (The assumption here is that the pairs are being traded on an equal, per-lot basis. However, this would differ if you increased your position in the Hong Kong dollar by, say, 20 lots, or decreased your position proportionally in the Mexican Peso. As a result, traders should always be mindful of how different currencies trade, as well as the size of their positions.)

Oddly enough, the Singapore dollar has two distinct trading periods, as two different markets in the currency begin in the 24-hour forex session. Starting with the European market, the SGD experiences higher volume and volatility from 3 a.m. to 12 p.m. ET. This is mainly because markets in both London and New York are actively trading in the currency pair.

The USD/SGD pair tends to lay low during the U.S. afternoon session, only to pick up again when Asian markets begin trading. With traders in Hong Kong and Japan at their desks, volume begins to increase for the six hours from 6 p.m. to 12 a.m. ET. During this time the pair will tend to make moves that can be considered a mixture of the two markets. Generally, the USD/SGD’s moves are not as wide as the Mexican peso’s, but not as narrow as the Hong Kong dollar’s. The average range is around 53 pips, which is comparable to most G7 major currency pairs.