FX currency fixings refer to the regular benchmark rates published at specific times throughout the day. These benchmark rates are a reference point for currency traders and other market participants to value their trades and manage risk.
Currency fixings are typically determined by taking an average of the prevailing exchange rates at a specific time of day, usually based on trades conducted in the interbank market.
FX currency fixings are a crucial component of the foreign exchange market as they provide a standard reference point for the value of currencies. In addition, the benchmark rates established by currency fixings are used to price a wide range of financial products, such as futures, options, and other derivatives. They also play an essential role in international trade and investment, as businesses and investors rely on accurate and transparent currency valuations to make informed decisions about transactions involving different currencies.
Major FX currency fixings
The major currency fixings are published regularly throughout the trading day and used as reference points for valuing currencies.
These benchmark rates are based on actual transactions in the interbank market and are widely used by traders and other market participants to price various financial instruments.
Organizations such as WM/Reuters, the European Central Bank, and various financial institutions in London and Tokyo publish the most important currency fixings.
The WM/Reuters Fix is one of the world's most widely used currency fixings and is published twice daily at 12 pm and 4 pm GMT. The benchmark rates are based on trades conducted by major banks in the interbank market over one minute. The WM/Reuters Fix is a reference point for valuing trillions of dollars worth of financial products, including foreign exchange contracts, options, and derivatives.
European Central Bank Fix
The European Central Bank (ECB) Fix is published daily at 2:15 pm CET and is used to value the euro against other major currencies. It's based on the median price of trades conducted in the interbank market over two minutes. Businesses and investors widely use it for international trade and investment transactions involving the euro.
London 4 pm Fix
The London 4 pm Fix, also known as the "London Close," is published daily at 4 pm GMT and is used to value major currencies against the U.S. dollar. It is calculated by referencing interbank market trading over one minute. It is widely used by traders and other market participants to price financial instruments in the London time zone, such as forex contracts and options.
The Tokyo Fix is published daily at 2 pm JST and is used to value major currencies against the yen towards the end of the Tokyo FX trading session before the London session begins. The benchmark rates are based on trades conducted in the interbank market over two minutes. It is principally used for settling rates in transactions involving the yen in Asia timezone.
How FX currency fixings affect FX rates and trading
Currency fixings can sometimes significantly impact FX rates as they can create open positions once derivatives such as cash-settled options need to be realized or hedged with actual trading. In addition, traders may also use currency fixings to make trading decisions or adjust their risk exposure to specific currencies.
Alternatively, a day trader may use the London 4 pm Fix as a reference point for valuing a currency contract or setting a stop-loss order.
Traders may also monitor currency fixings for any unexpected movements or significant differences from the prevailing market rates, which may create opportunities for trading, particularly in the uncertain period leading up to the calculation and publication times.
Therefore, traders should cautiously approach currency fixings and carefully manage their risk exposure.