Tokyo Nakane Trade Guide: Strategy, Pros & Cons for FX Traders

By 佐川 直弘 (株式会社トリロジー取締役)

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1. What is Tokyo Nakane Trade? A Noteworthy Trading Method Performed Before the Market Open

“Tokyo Nakane Trade,” a trading method attracting attention among FX traders. This article explains everything from the basics of Nakane trading to its pros and cons, and points for practical application. We will also introduce trading strategies related to “Goto-bi” (days ending in 0 or 5), providing information useful for actual trading.

2. Basic Knowledge of Tokyo Nakane Trade

Tokyo Nakane Trade is a trading method performed before the Tokyo market open, primarily targeting Japanese Yen pairs. The “Nakane,” announced by banks daily at 9:55 AM JST, is referenced by many traders as the day’s base rate. Price movements tend to occur just before the Nakane is determined, creating an excellent opportunity for traders seeking short-term profits.

3. Mechanism of Tokyo Nakane (Tokyo Forex Fixing)

Nakane is the exchange rate used by financial institutions as a reference for transactions with customers, determined before the Tokyo market opens. The level of Nakane influences intraday market trends, making it important reference information, especially for trading Japanese Yen pairs.

4. Advantages of Tokyo Nakane Trade

1. Opportunity for Profit Due to High Volatility
   Volatility is high just before the Nakane is determined, making it easy to aim for short-term profits. Price movements tend to be particularly active on Goto-bi, leading to an increased tendency for USD buying and JPY selling orders.
2. Less Slippage, Easier Risk Management
   Nakane Trade is characterized by somewhat lower market liquidity, which tends to prevent spreads from widening and makes slippage less likely to occur. Consequently, it is easier to manage the risk of losses.
3. Efficient as It Concludes Quickly
   Since trades are completed within a few minutes in the morning, it’s an advantage that even traders with time constraints can easily participate.

5. Disadvantages of Tokyo Nakane Trade

1. Risk of Unpredictable Movements
   Trading before the market open is prone to rapid fluctuations due to economic indicator announcements or important news, so it’s important to be aware that there are moments when prediction is difficult.
2. Low Liquidity, May Be Difficult to Execute Orders
   Due to the low trading volume during this time, there are cases where orders may not be executed as intended. For this reason, it may not be suitable for traders who require a certain amount of trading volume.
3. Spreads Tend to Widen
   During the time when the Nakane is determined, liquidity temporarily decreases, and spreads may widen more than usual. Transaction fees may also be higher than during regular trading hours, so be aware of the cost-related risks.

6. Points of Caution and Strategies for Tokyo Nakane Trade

• Strategy Targeting Goto-bi
  On Goto-bi, corporate USD buying tends to concentrate, leading to a tendency for the yen to weaken before the Nakane. By specifically targeting trading on these days, it becomes easier to capture short-term profits. However, it is necessary to carefully assess the situation as the same tendency is not always observed on all Goto-bi.
• Emphasize the Timing Around 9:55 AM (Japan Time)
  Since price movements around 9:55 AM are difficult to predict, entry and exit timing are crucial. By incorporating not only technical analysis but also fundamental factors, the possibility of conducting stable trades increases.
• Risk Management to Suppress Yen Exchange Rate Fluctuation Risk
  Since the yen exchange rate is difficult to predict, risk management is essential in Tokyo Nakane Trade. As unexpected price movements can occur, set stop-loss orders according to your risk tolerance and aim for manageable trades.

7. Summary of Tokyo Nakane Trade

Tokyo Nakane Trade is a very interesting method for traders looking to capture short-term profits. However, because the Nakane determination time is limited, there are risks such as difficulty in order execution and potential losses due to sudden market fluctuations. By employing strategies targeting Goto-bi and conducting careful risk management, you can utilize Tokyo Nakane Trade more effectively.

For traders interested in Japanese Yen pairs or investors interested in the Japanese domestic market, Nakane rate information is indispensable. By carefully planning your strategy and conducting trades while minimizing risk, try to maximize the benefits of Tokyo Nakane Trade.