Many first-time forex traders hit the market running. They watch various economic calendars and trade voraciously on every release of data, viewing the 24-hours-a-day, five-days-a-week foreign exchange market as a convenient way to trade all day long. Not only can this strategy deplete a trader's reserves quickly, but it can burn out even the most persistent trader. Unlike Wall Street, which runs on regular business hours, the forex market runs on the normal business hours of four different parts of the world and their respective time zones, which means trading lasts all day and night.
So what's the alternative to staying up all night long? If traders can gain an understanding of the market hours and set appropriate goals, they will have a much stronger chance of realizing profits within a workable schedule.
The Forex Markets Hours of Operation
First, here is a brief overview of the four markets (hours in Eastern Standard Time, or EST):
New York (open 8 a.m. to 5 p.m. EST) is the second-largest forex platform in the world, watched heavily by foreign investors because the U.S. dollar is involved in 90% of all trades. Movements in the New York Stock Exchange (NYSE) can have an immediate and powerful effect on the dollar. When companies merge, and acquisitions are finalized, the dollar can gain or lose value instantly.
Tokyo, Japan (open 7 p.m. to 4 a.m. EST) is the first Asian trading center to open, takes in the largest bulk of Asian trading, just ahead of Hong Kong and Singapore. The currency pairs that typically have a fair amount of action are USD/JPY, GBP/USD, and GBP/JPY. The USD/JPY is an especially good pair to watch when the Tokyo market is the only one open, because of the heavy influence the Bank of Japan has over the market.
Sydney, Australia (open 5 p.m. to 2 a.m. EST) is where the trading day officially begins. While it is the smallest of the mega-markets, it sees a lot of initial action when the markets reopen on Sunday afternoon because individual traders and financial institutions are trying to regroup after the long pause since Friday afternoon.
London, Great Britain (open 3 a.m. to noon EST) is a central trading capital of the world and accounts for roughly 43% of global trading. The Bank of England, which sets interest rates and controls the monetary policy of the GBP, has its headquarters in London. Forex trends often originate in London as well.
The Best Hours for Forex Trading
Currency trading is unique because of its hours of operation. The week begins at 5 p.m. EST on Sunday and runs until 5 p.m. on Friday.
Not all hours of the day are equally good for trading. The best time to trade is when the market is most active. When more than one of the four markets are open simultaneously, there will be a heightened trading atmosphere, which means there will be more significant fluctuation in currency pairs.
When only one market is open, currency pairs tend to get locked in a tight pip spread of roughly 30 pips of movement. Two markets opening at once can easily see movement north of 70 pips, particularly when big news is released.
Overlaps in Forex Trading Times
The best time to trade is during overlaps in trading times between open markets. Here is a closer look at the three overlaps that happen each day:
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U.S./London (8 a.m. to noon EST): The heaviest overlap occurs in these markets. More than 70% of all trades happen when these markets overlap because the U.S. dollar and the euro (EUR) are the two most popular currencies to trade. This is the most optimal time to trade since volatility is high.
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Sydney/Tokyo (2 a.m. to 4 a.m. EST): This time period is not as volatile as the U.S./London overlap, but it still offers a chance to trade in a period of higher pip fluctuation.
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London/Tokyo (3 a.m. to 4 a.m. EST): This overlap sees the least amount of action due to the time, and the one-hour overlap gives little opportunity to watch large pip changes occur.
Impact of News Releases on Forex Markets
While understanding the markets and their overlaps can aid a trader in arranging their trading schedule, the release of news can greatly influence currency movements. Major economic announcements can lead to rapid changes in currency values.
Why Do Forex Markets Trade Around the Clock But Not Stock Markets?
Forex markets are open around the clock because different exchanges worldwide trade in the same currency pairs. Stock markets, on the other hand, primarily trade in local securities and have varying trading hours. Forex's continuous nature provides traders with more flexibility.
Why Is Forex Liquidity Important?
Liquidity is crucial in forex trading. Highly liquid currency pairs are easier to trade with narrower bid/ask spreads. The most liquid currencies include USD, EUR, JPY, GBP, AUD, CAD, and CHF, with EUR/USD, USD/JPY, GBP/USD, and USD/CHF being the major pairs.
In summary, understanding the optimal times to trade in the forex markets is essential for successful trading. The best trading hours align with market overlaps and major economic announcements. Traders who strategize their trading schedule wisely can maximize their profit potential and avoid burnout in this 24/7 market.
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