Best Times to Trade the Forex Markets: A Guide

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Best Times to Trade the Forex Markets: A Guide

Many first-time forex traders rush into the market. They monitor several economic calendars and trade aggressively on every data release, seeing the 24-hour, five-day-a-week foreign currency market as a simple method to trade all day. This method not only swiftly depletes a trader’s funds, but it may also burn out even the most tenacious trader. Unlike Wall Street, which operates on regular business hours, the forex market operates on the regular business hours of four different areas of the globe and their corresponding time zones, which means trading occurs at all hours of the day and night.

So, what is the alternative to being up all night? If traders can learn about market hours and create proper objectives, they will have a lot better chance of making money on a reasonable timetable.

Key Takeaways

  • The currency market operates during regular business hours in four distinct time zones throughout the globe.
  • The overlap of the US/London markets (8 a.m. to noon EST) has the highest volume of trade and offers the finest trading chances.
  • Although the Sydney/Tokyo market overlap (2 a.m. to 4 a.m.) is not as turbulent as the US/London overlap, it nevertheless provides chances.

The Forex Markets Hours of Operation

First, here’s a quick rundown of the four markets (in Eastern Standard Time, or EST):

New York

According to Kathy Lien’s “Day Trading the Currency Markets” (2006), New York is the world’s second-largest FX platform, followed closely by overseas investors since the US dollar is engaged in 90% of all deals. The New York Stock Exchange’s (NYSE) movements may have an immediate and dramatic impact on the dollar. When corporations combine and acquisitions are completed, the dollar may quickly gain or lose value.

Tokyo

Tokyo, Japan (open 7 p.m. to 4 a.m.) was the first Asian trading hub to open and now accounts for the majority of Asian trade, behind only Hong Kong and Singapore. USD/JPY (or US dollar vs. Japanese yen), GBP/USD (British pound vs. US dollar), and GBP/JPY are currency pairings that see a lot of activity (British pound vs. Japanese yen).Because of the Bank of Japan’s (Japan’s central bank’s) significant influence over the market, the USD/JPY is a particularly useful pair to observe when the Tokyo market is the only one open.

Sydney

The trading day officially starts in Sydney, Australia (open from 5 p.m. to 2 a.m.). While it is the smallest of the mega-markets, it sees a lot of early movement when the markets reopen on Sunday afternoon because individual traders and financial institutions are seeking to reorganize following the extended halt that began on Friday afternoon.

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London

London, United Kingdom (open from 3 a.m. until noon): The United Kingdom (U.K.) leads global currency markets, with London as its focal point. According to a BIS analysis, London, the world’s principal trading hub, accounts for around 43% of global trade. The city also has a significant influence on currency swings since the Bank of England, which sets interest rates and regulates the GBP’s monetary policy, has its headquarters in London. Forex trends often start in London, which is important for technical traders to remember. Technical trading is analyzing statistical patterns, momentum, and price movement to locate opportunities.

The Best Hours for Forex Trading

Currency trading is distinct due to its operating hours. The week starts on Sunday at 5 p.m. EST and ends on Friday at 5 p.m.

Not all hours of the day are suitable for trading. When the market is most active, this is the greatest moment to trade. When more than one of the four markets is active at the same time, the trading environment is heightened, resulting in more volatility in currency pairings.

When just one market is active, currency pairings tend to lock in a narrow pip spread of around 30 pips. When two markets open at the same time, movement may easily exceed 70 pips, especially when major news is revealed.

Image by Sabrina Jiang © Investopedia2021

Overlaps in Forex Trading Times

The optimal time to trade is when trading periods between open marketplaces coincide. Overlaps equal larger price ranges, which means more chances. Here is a deeper look at the three overlaps that occur on a daily basis:

  • U.S./London (8 a.m. to noon): The most market overlap occurs in the US/London markets. According toLien, when both markets intersect, more than 70% of all deals occur since the US dollar and the euro (EUR) are the two most popular currencies to trade. Because volatility (or price activity) is high, now is the best moment to trade.
  • Sydney/Tokyo (2 a.m. to 4 a.m.): While not as volatile as the US/London overlap, this time period nevertheless provides an opportunity to trade at a period of higher pip volatility. Because these are the two major currencies involved, EUR/JPY is the optimum currency pair to strive for.
  • Because of the timing (most U.S.-based traders will not be awake at this time), this overlap sees the least amount of movement of the three, and the one-hour overlap provides limited chance to witness major pip moves occur.
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Impact of News Releases on Forex Markets

While knowing the markets and their overlaps might help a trader plan his or her trading schedule, one factor should not be overlooked: the publication of news.

A major news release has the potential to boost a typically quiet trading session. When a big revelation about economic data is made, particularly if it contradicts the projected prognosis, currency may lose or gain value in a matter of seconds.

Despite the fact that hundreds of economic releases occur every daily in all time zones and effect all currencies, a trader does not need to be aware of them all. It is critical to distinguish between news releases that must be observed and those that should be monitored.

In general, the greater a country’s economic development, the more favorably the economy is seen by overseas investors. Investment money tends to migrate to nations that are seen to have excellent development prospects and, as a result, attractive investment possibilities, causing the country’s currency to rise.

Furthermore, a nation with higher interest rates on its government bonds tends to attract investment capital as overseas investors seek high-yielding prospects. Stable economic development, on the other hand, is inextricably linked to attractive returns or interest rates.

Examples of significant news events include:

  • Central banks make interest rate choices because higher interest rates attract more global investment and capital flows, strengthening the currency.
  • CPI data, which tracks inflation and has the potential to influence central bank policy
  • Trade deficits, or more imports than exports, result in increased cross-border capital movements, which influence exchange rates.
  • Consumer spending is a primary driver of economic development in the United States and across the world.
  • Central bank meetings are widely scrutinized for any hints of future interest rate movements.
  • Consumer confidence is a measure of how the typical consumer feels about the economy and how it affects consumer purchasing.
  • Gross Domestic Product (GDP) statistics is a measure of all commodities and services generated in a nation.
  • Unemployment rates, which quantify the jobless workforce, are important since lower unemployment tends to translate into higher GDP and a stronger currency, and vice versa.
  • Consumer spending is measured by retail commerce, which supports economic growth.
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Why Do Forex Markets Trade Around the Clock But Not Stock Markets?

In some ways, forex markets are “open 24/7” since multiple exchanges around the globe trade in the same currency pairings. A stock exchange typically lists and trades in shares of a single country, therefore even when other stock exchanges are available worldwide, they are mostly dealing in local securities rather than the same identical equities. While there are international equities available in the United States as ADRs, the ADR shares will stay closed at times when the real foreign shares are open, and vice versa.

Why Is Forex Liquidity Important?

The ease with which securities may be bought or sold at a reasonable price is referred to as liquidity. When there is a lot of liquidity, the bid/ask spread narrows and you may trade more without impacting the market. In an illiquid market, on the other hand, the spread between the bid and ask may be quite broad but not particularly deep. In general, liquid currency pairings are active and have a large trading volume.

Which Are the Most Liquid Currencies?

The Bottom Line

When creating a trading plan, it is critical to take advantage of market overlaps and keep a careful watch on news releases. Traders aiming to increase earnings could trade during more turbulent times while keeping an eye on the publication of fresh economic data. This balance enables part-time and full-time traders to create a timetable that provides them peace of mind, knowing that opportunities will not be lost if they take their eyes off the markets or need to sleep for a few hours.

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