The best time to trade currencies is when the market is busiest. Trade spreads tend to be at their smallest around this time. As a result, those that facilitate currency transactions, such as market makers, are compensated less, while traders profit more.
Despite the fact that there are many trading sessions and exchanges throughout the world, New York, London, Tokyo, and Sydney trading sessions are the four most significant ones. Financial institutions play a critical role in facilitating transactions because there is no centralized exchange in Forex. Traders and financial institutions from across the world are the biggest participants in the foreign exchange market.
Why it’s important to pick the best trading hours
The busiest hours of the day are when London and New York’s financial centers open for business.
This is the time of day when major changes can be expected, especially in the form of financial news from the United States and Canada. In addition, late European news can sometimes have a significant impact on the markets.
Trading in the United States might continue any patterns that emerged during the European session if traders in the United States act on what they’ve learned and take positions.
A trader who deals with a variety of currencies and markets may have to stay on and engage in trading all day long. Some currency traders have a long day’s work, starting with Tokyo and Sydney and finishing with London and New York.
The varied time zones and their working hours have a considerable influence on currency pairs because of the evident overlaps between the different exchanges. In contrast to equities markets, the pairing of anybody dealing on the London market on the EURUSD or GBPUSD is expected to witness increased movement once New York opens its doors for the trading day.
The market can become volatile because of these overlaps, but they also present the finest trading chances. There is a greater influence on price movements and the possibility of new highs and lows while the two markets are open than there is when one of them is shut down.
When is the best time of day to trade Forex?
Consider the effect on liquidity and if trading sessions overlap before engaging in forex trading at various times of the day and at different times of the week.
The New York session
Because of the large overlap between New York and London sessions, the GBPUSD cross tends to have substantially high liquidity. It’s common for forex traders to trade heavily in the New York session as they try to extract every last penny of profit they can get out of that day’s news announcements.
The New York trading session is the busiest time of day for many USD crosses, accounting for about 44% of all daily transactions in the Forex market.
The London session
When it comes to trading volume, the London session is amongst the most active. The British pound (GBP) is a popular currency in the foreign exchange market.
The London session begins at 3 a.m. and ends at 12 p.m. Eastern Standard Time. This corresponds to 8 am to 4 pm UTC. During this session, the best currencies to trade include GBPUSD, GBPJPY, EURCHF, and USDCHF.
Because there are fewer hours in which both sessions are available at the same time, the Tokyo-London overlap has historically been less popular than the London-New York crossover.
The Tokyo session
There is a five-hour overlap between the Tokyo and Sydney sessions, with both locations open from 7 pm to 12 pm at the same time (EST). During the Tokyo trading session, USDJPY and AUDJPY are the most popular pairs. AUDJPY, one of the market’s most volatile currency pairings, also sees a lot of liquidity during the overlap between Sydney and Tokyo sessions.
Trading session overlaps and their effects
Here is a breakdown of the overlap between the most important trading hours:
- Sydney and Tokyo sessions overlap from 19:00 to 01:00 EST.
- There is an overlap between London and Tokyo’s trading hours between 03:00 and 04:00 Eastern Time (ET).
- London and New York trading sessions are both open from 08:00 EST to 12:00 EST.
The trade overlap between London and New York amounts to more than half of all global Forex trading activity, and it continues to be the most significant trading period. Despite this, not all currency pairs see the most trading activity during this period.
Because the Asian trading session spans the business hours of these nations and their stock markets, the JPY, Chinese yuan, and dollars of Australia and New Zealand tend to be active during the Asian trading session, for example.
Money flowing into a country’s stock market may lead to an increase in its local currency since foreign currencies must be translated into local currency in order to acquire the stock market’s shares.
When to keep off the market
Traders should avoid the Forex market when:
- Around noon local time, the four major trading sessions take an unofficial two-hour break. Because of the lack of liquidity during this time, the spreads widen, and any patterns that have been formed are still vulnerable to change.
- Avoid trading Forex when an important press announcement is around 30 minutes away or has just happened. These events are prone to creating false breakouts and breakdowns because of their volatility. The use of a comprehensive economic calendar can assist traders in avoiding the news trading trap, which is popular but often too risky, with a slim chance of being profitable.
Traders working across numerous currency pairs in a worldwide trading environment spanning different time zones face significant challenges. Every forex trader should be able to keep track of the trading hours on every exchange at once. It’s important for them to know when these marketplaces open and close.
When different exchanges are open at the same time, it can cause a lot of volatility. Traders should therefore incorporate the time aspect in their trading of different currency pairs.