What is the Best Time of Day to Trade Forex?

What is the Best Time of Day to Trade Forex?

  • Posted on 1515-1212-2021
  • by Gareth McCauley

While the foreign exchange (forex) market is known to be highly liquid, with a reported average trading volume of $966.7 billion in April 2021 in the US alone, many traders find that certain time slots offer higher liquidity and tighter spreads than others.

Likewise, currency pairs perform differently at certain points of the trading day because of the general demographics of the market participants who are active at that time.

Today we’ll look into the different forex sessions and identify the best time to trade forex based on various geographic locations.

Operating Hours of the Major Forex Markets

Each trading day is broken up into different sessions: The Asia-Pacific session, the European/London session, and the North American session.

While technically traders can access the market 24/7, it is more active when there is an overlap between any two sessions in certain regions. However, keep in mind that the increase in activity is tied to the currencies available in two overlapping regions.

For instance, the GPB/USD currency pair experiences higher trading activity between 8 a.m. to 11 a.m. (EST), when the European and US sessions are open at the same time.

When two markets open simultaneously, gains are capped at 70 pips per movement, compared to a tight spread of 30 pips, when only one market is open.

Before we look at the different overlapping sessions, let’s first identify the major forex markets and their operating hours (all in EST):

Sydney, Australia (opens at 3 p.m. and closes at midnight)

Sydney is where the trading day officially opens. While it is considered the smallest of the four major markets, high activity occurs in this region on Sunday afternoons when the market reopens—a time when most traders and financial institutions are regrouping after the long pause from the last trading day (Friday).

Tokyo, Japan (opens at 7 p.m. and closes at 4 a.m.)

Tokyo is the first Asian forex market to open. It is also responsible for most trading activities in Asia. Popular currency pairs in the region include USD/JPY, GBP/CHF, and GBP/JPY. However, traders should closely monitor the USD/JPY pair when the Tokyo market is the only one open because of the Bank of Japan’s influence over the market.

London, Great Britain (opens at 3 a.m. and closes at 11 a.m.)

London is considered the largest forex market in the world, with 43% of global trading happening in the region. It also heavily impacts currency fluctuations since the Bank of England, which assigns interest rates and manages the GBP policy, is headquartered in the city.

New York (opens at 8 a.m. and closes at 5 p.m.)

In her 2006 book “Day Trading the Currency Markets,” Kathy Lien describes New York as the second-largest forex platform in the world, with the US dollar involved in 90% of all trades. Traders should closely monitor the movement of the New York Stock Exchange (NYSE) since it can significantly impact the value of the dollar.

Overlaps in Forex Sessions

Crossovers between two trading sessions lead to higher price ranges, tighter spreads, and greater winning opportunities. Here are the overlapping sessions that every trader should know:

  • S./London (8 a.m. to noon): Since the US dollar and the euro (EUR) are the highest traded currencies, over 70% of all trades occur when these markets overlap. Traders can expect high volatility or price activity during these sessions.
  • Sydney/Tokyo (2 a.m. to 4 a.m.): This time window is not as volatile as the U.S./London overlap. But traders can benefit from trading the EUR/JPY during higher pip fluctuations, since these currencies are the most influenced.
  • London/Tokyo (3 a.m. to 4 a.m.): Of the three overlaps, this period sees the least action as most U.S.-based traders are asleep. The one-hour crossover also offers little opportunity for large pip changes to occur.

How News Releases Impact Forex Markets

Along with understanding the different market overlaps and optimal trading hours, traders should also monitor the news. A big news update can greatly influence the normally slow trading period. For example, news updates on economic data can increase or decrease the value of a major currency within a matter of minutes.

Some news updates to monitor include those that involve CPI data, central bank meetings, gross domestic product data, unemployment rates, and trade deficits.

Ready to Start Trading Forex?

Take advantage of different currency pairs wherever you are in the world with help from a reputable forex broker. Fair Forex provides you with the tools needed to make a winning trade. This includes 52 currency pairs, tight spreads of as low as 0.0 pips, up to 1:500 leverage, and deep liquidity.

Get sound advice on the best trading hours from our seasoned forex experts. Reach out to us at 1-844-600-FAIR to start trading.