It is common knowledge among traders that the foreign exchange market is always open. Anyone can sign into their trading accounts at any time to buy and sell currencies.
Many new traders see this as an invitation to log into their accounts at their leisure, not minding the season or time of day. Others trade the market continuously with every new information they get.
This approach can quickly cause one to lose their capital, thereby discouraging them from forex trading very early on.
The forex market runs on the business hours of 4-different timezones. Therefore, even though it’s always open, there are times when trading can be favorable or unfavorable to the different currency pairs.
Knowing the best times to trade or avoid the market is immensely vital as your profits or losses will be determined by this.
Forex market hours of trading.
As we mentioned, the forex market operates during business hours for the 4-different timezones.
Below, in Eastern standard time (EST), we briefly outline the hours of forex operation in different parts of the world:
1. Sydney, Australia. 5 PM – 2 AM.
Forex trading day officially starts in Sydney since the country’s time is ahead of all the others. Australia time is far ahead of Eastern time and GMT, so the trading hour is odd in other parts of the world.
It is the smallest market but always very active at the start of the trading week(Sunday 5 PM) as everyone tries to regroup after the weekend off-days.
2. Tokyo, Japan. 7 PM – 4 AM
Tokyo’s trading center opens ahead of all other Asian sessions, two (2) hours after the Sydney session starts.
Currency pairs like Usd/Jpy(US dollar and Japanese yen), GBP/CHF(British pounds/Swiss Franc), GBP/Jpy(British pounds/Japanese yen) get a lot of trading activities during this period.
3. London, Great Britain. 3 AM – 12noon.
London is the biggest financial market and the trading capital of the world. According to BIS, this market is responsible for 43% of global forex trading. All forex trends start from the London market, so most traders, especially traders who use technical analysis, pay close attention to the London market.
Most major, minor, and exotic pairs do well during this trading time. Currency crosses with the US dollar, the British pound, and the Euro is highly traded during these times. Experienced and full-time traders from all over the world take part in the high activities in the market.
4. New York, USA. 8 AM – 5 PM.
The New York market is the 2nd largest in the world. It is said that 90% of forex trade involves the US dollar. So investors pay close watch to the New York stock exchange because any slight movement in this market affects the dollar, which then influences trade and investment around the world. Exotic pairs involving the US dollar, plus other major and minor crosses see a lot of active trading in these hours.
What time of day is best to trade forex?
As we said, timing is a crucial factor when trading forex. Not all times of day are good enough for opening positions. Certain forex pairs do better at specific times too. But the best time to trade any pair is when the market is most active. Active market times translate to higher liquidity.
The more people there are in the market, the greater the liquidity. High liquidity leads to tighter spreads on pairs, thereby lowering your cost of trading.
What time is the forex market most active?
1. When some trading sessions overlap.
Different trading sessions overlap at specific times of the day. That is, multiple trading sessions may be open simultaneously around the world. It would mean more people in the market and more trading activities.
These time overlaps are as follows:
A. New York/London 8 AM – 12NOON EST.
This is the heaviest time overlap, occurring between the two largest markets. The best time to use market volatility to your advantage is this period.
70% of forex trades occur within this overlap because the US and Euro are 2 of the most popular currencies traded in the market.
It’s also the best time to trade any currency that is paired with the dollar, Euro, or British pound.
B. Tokyo/Sydney. 2AM – 4AM EST.
Liquidity is not very high during this time. But traders still find the opportunity to trade of pip constant movement.
The Euro and Japanese Yen(Eur/Yen) has high liquidity during this time as well. The dollar versus the yen and the Euro versus the dollar also see some action in this overlap.
C. Tokyo/London. 3AM – 4AM EST.
This time sees fewer activities than the other overlaps mentioned.
For one, it’s the middle of the night in some parts of the world. And 1-hour is too short to trade the pips fluctuations.
2. During London sessions.
Remember we said about 70% of forex trading occurs in the London market. The trades take place during the London sessions, that’s 3 AM – 12noon EST.
It is a time of high activity in the market, and therefore the market is highly liquid.
It is a great time to trade almost any pair, being the busiest session. Any of the currency pairs will have a high volume during this time.
3. Middle of the weekdays.
The market gets a little active in the beginning hours of the trading week. Then it slows down in the late hours on Sunday, till Monday afternoon. The middle of the week is when activities get to their peak.
From Tuesdays to Thursdays, the market is busier than any other day during the week. And is the best time to trade any pair.
When should you not trade forex?
Certain times are unfavorable for forex trading. These are times of low liquidity in the market or periods of uncertainties in major economies that impact the world.
Below, we outline some of the worst times to trade forex:
1. Late Sunday to Monday afternoon.
At this time, liquidity is low because market participants are still watching the market and working on their analysis for the week ahead.
Things start to pick up around Monday afternoon as more traders begin their trading week.
2. The last day of the week.
During this time, most traders will be closing out their sales and exiting their positions. Liquidity will gradually come to a halt.
And any open positions will be left to algorithms with you having no control over it till after the weekend. It’s best to take a breather from the market at this time.
3. Right after a major news release.
A major news release can have a huge impact on the market and cause sudden price moves. False breakouts, trends, and signals all result from such economic announcements.
Trading at this time can be dangerous, especially for inexperienced traders. Though, expert traders may know how to seize whatever opportunity it presents.
Most experienced price action traders would wait till the close of that business day to see what direction the market takes.
4. During national holidays.
Watch out for international and national holidays in the different time zones. The market may be open, but financial institutions, individuals, and corporate bodies would be on vacation. So liquidity will be limited.
It is not advisable to trade at these times.
5. When you feel emotionally imbalanced.
Being in the right frame of mind is essential to trading in the financial market. You need to go into the market with a sound mind and clear thinking.
Avoid trading when you feel exhausted, emotional, or mentally imbalanced. It could lead you to make decisions that’ll cost you money.
What is the best time to trade forex in the UK?
As we mentioned, the London market is the most active, and it accounts for more than 50% of activities in the forex market.
The UK market is most active in the opening hours of its session, from 8 AM UK time (3 AM EST).
Activities may slow down a few hours into the session, around 10 AM (5 AM EST).
It then picks up during New York’s opening session, 12noon UK time. Trading volume for some pairs goes up at this time.
How timing affects individual currency pairs
Timing affects the liquidity of the currencies differently.
Some pairs are more liquid at a certain time of the day than others. Typically, currencies experience a lot of movement during their trading session.
For example, the US dollar versus the Japanese Yen (USD/JPY) can experience a lot of activity during the Tokyo and New York trading sessions. Forex pairs such as Euro versus Pounds(EUR/GBP) or Euro versus Swiss Franc (Eur/CHF) might see low liquidity during this time.
No matter the pair you choose, whether the popular pairs or the exotics, it will benefit you to find out the times most suitable for your preferred currencies. This will have a great impact on the success of your forex business.
Another important factor is economic data. It is paramount that you keep abreast of international and national news. Market conditions are created by economic and political happenings around the world. And being in the know can help you make accurate moves for profitable forex trade.
How news releases impact the forex market.
News releases have an immense impact on the market. Breaking news has the power to interrupt trends and change the market conditions to their current opposite.
Exchange rates can suddenly plunge or rise as a result.
Things never stop happening, so there’s always something new in the business world. As a forex trader, you must identify the economic data that applies to you and your business and stay informed in that area.
No matter the currency pairs you focus on, here’s a list of economic information that should have your attention:
1. Interest rates by the central bank
High-interest rates are appealing to investors. When the Central bank increases its interest rates, it attracts more investors to that country, and its currency value grows stronger.
2. Consumer Price Index data
The CPI of a country includes information such as the cost of living and consumer spending. The CPI of a country reflects its inflation or deflation rates and influences the central bank’s policy, thereby affecting the exchange rate.
3. Gross Domestic Product (GDP)
GDP is the result of goods and services produced in the country. Some of the products are exported out of the country in international trade. And the country’s revenue is increased as a result. The higher the GDP, the stronger the currency and the higher its exchange rate.
4. Rate of unemployment
The employment rate is linked to the country’s exchange rate. A low unemployment rate means a thriving economy with infrastructures, foreign investments, and high GDP. If the unemployment rate is high, it indicates a weak economy with a weak currency. So as the unemployment rate drops, the country’s exchange rate may gain value.
5. Higher Exports
A country whose exports are higher than its imports enjoys a trade surplus and economic growth. It reflects high GDP and an increase in the country’s revenue. This translates to wealth, with a strong currency and high exchange rates.
The benefits of using economic data to trade forex.
World economic news determines the market movements, especially the forex market. And it provides many opportunities to trade on the information and increase your profit.
Many experienced traders rely solely on the news release to trade forex. Here’s why:
1. Increased volatility.
Forex traders depend on market volatility to make a profit. News releases often add to this volatility, increasing the volume of the currency affected and its liquidity.
Though it is not advisable to rush into a trade after every news release. Better trades are placed after the event announced has occurred. This is when the opportunity for breakout trades can be spotted.
2. Accurately predict exchange rates and market conditions.
With economic data such as inflation rates, trade deficits, etc. You can tell what currencies might strengthen or weaken, thereby leading to more profitable trades.
Also, major currencies that are influenced by the prices of commodities such as oil, gold, metal will be easy to predict.
3. Foresee new trends
The forex pairs that you trade will most often consist of a major currency. The news always has a big impact on these major ones.
The news will keep you informed on economic situations in these countries, allowing you to prepare for trends before they occur, and help you plan successful trades.
Drawbacks of using economic data to trade forex.
1. Requires knowledge and expertise.
To trade forex solely on economic data, you need to have a good knowledge of the forex market and how it operates. This type of trading is not for the rookie trader or the inexperienced, as they may not understand the effect of certain news on their trade. An expert trader would know how such information affects both positions in their trade. And they would know how to use the opportunities presented by the information.
2. Possible increase in the cost of trading.
Some economic information may require positional trading. Or at least holding the positions for days. This type of trading attracts overnight charges by the broker. So the trader will incur higher costs.
As much as timing is paramount in forex trading, economic data is equally important.
Trading the market at the right time will not matter unless your trades are properly planned and based on the right economic information.
So the best time to trade forex and profit from your trade is not only the time with the highest liquidity. But also, when you have sufficient and accurate information about the forex pairs that interest you.