The author is an expert in the field of multi-asset trading.
Best Time of Day to Trade Forex
One of the wonderful things about forex trading is that the market is open globally 24 hours a day, 5 days a week, so you can trade at your own pace and on your own schedule, no matter where in the world you are. But that doesn’t mean that all hours of the day are created equal. While the forex market generally has the highest liquidity of all financial markets, it does have hours that are quiet, and hours that are bustling with action. See what the best time of day to trade forex is below.
And if you need a refresher on how forex trading hours work and an explanation of the major global exchanges and trading sessions, read our brief overview of how the forex market manages to stay open around the clock, all around the world - https://www.equiti.com/blog/posts/2018/august/how-long-forex-market-open-forex-trading-hours-explained/
The Best Time to Trade Forex
Day and night activity and high liquidity are what makes forex trading so special, but the best time to trade forex is when the market is experiencing the most activity and/or volatility, and it’s only natural that liquidity is at its highest when there are more people participating in the market. When there are more trades being made, the trading spread (the difference between the bid and the ask price) tends to tighten, providing more beneficial conditions for the trader to profit.
Volatility can be a good thing
Volatility is the rate and extent to which a currency price fluctuates, and while some traders have a fear of the word volatility, it can be very beneficial. If there wasn’t any volatility, prices would be static and there would be no opportunity to profit off of price changes, which is what forex trading is all about. And given the nature of the forex market’s major global exchanges, when more than one exchange is open, trading volume increases, along with volatility.
Forex Trading Session Overlaps
The best time of day to trade forex is when volatility is high, and the highest participation rate generally happens when two forex trading sessions overlap, as more than one major global exchange is open at once. The increased number of traders actively buying and selling currencies results in reduced spreads and increased volatility. But as we’ll see not all sessions, and their overlaps, are the same.
Sydney and Tokyo are mostly open concurrently and (together with the lesser Singapore and Hong Kong exchanges) make up the Asian trading session, which generally sees lesser movement than the others, though there is still higher pip fluctuation than when only one exchange is operating. Thus, the slight Tokyo-London overlap can be underwhelming as US traders are asleep, European traders are just starting their day, and East Asia enters the late afternoon.
The real action takes place during the London – New York overlap, as the two largest financial centres in the world combine forces. The US dollar and the euro are the two most popular currencies to trade, and this market overlap makes up the major chunk of worldwide trades. Some of the biggest moves are made during this period, especially when major reports come out of the US, and US traders establish their positions based on earlier European trends. This is one of the best times to trade forex, especially if you’re trading EUR/USD or GBP/USD currency pairs.
Best Currencies to Trade During Each Forex Market Session
Independently of each other, each major forex exchange still offers up some good trading opportunities.
Sydney – The trading day begins in Sydney. Although it is the smallest of the major markets, it experiences a lot of the early action when the markets reopen from the weekend break.
Tokyo – Tokyo makes up the bulk of Asian trading, with the Japanese Yen seeing a good amount of action. JPY currency pairs, especially USD/JPY, should be closely watched when the Tokyo market is the only one open, as the Bank of Japan has a strong influence on the market.
London – London is truly the trading capital of the world and it dominates the global currency markets. This session has a heavy impact on currency fluctuations given the Bank of England’s influence and the importance of the GBP.
New York – New York is second only to London in its importance as a global financial centre. It is closely monitored by foreign investors far and wide, given that the US dollar is involved in the vast majority of all currency trades. Movements in the stock market can also affect the dollar.
While there certainly are times to trade forex that are better than others, there is usually something to trade at all hours of the day and night. No matter which currencies you wish to trade, you’ll find a suitable time for it. You can experience these various trading hours, each with their own advantages, by opening a risk-free demo account and trading with $10,000 in virtual money. See what level of volatility you prefer and move on to the real thing.