One of the biggest plusses that the foreign exchange market offers traders consists of the fact that currencies trade twenty four hours a day, five days a week. This means that you can start trading Sunday afternoon EST and continue trading non stop all the way until Friday afternoon EST. This round the clock trading feature gives traders with workaholic tendencies a perfect market place in which to operate. In this article we look at the best time to trade forex, and also the worst.
The reason this opportunity exists has to do with time zones and where markets open in different parts of the world. For example, because the day begins in the Far East, the forex market opens in New Zealand, Australia and Asia first, then Europe and then North America.
Nevertheless, poor times to trade also exist, and so the sections below will cover the forex market’s time table and the best and worst times to trade. All times mentioned will be expressed in Eastern Standard Time or EST.
The Australian and Asian Sessions
The foreign exchange market opens with the Sydney session at 5:00 PM EST in Sydney, Australia, although some traders in New Zealand will make prices an hour earlier at their 4:00 PM open. Wellington then closes at midnight, while Sydney then closes at 1:00 AM.
Throughout the following forex trading week, the Sydney open at 5:00 PM EST is basically the same time as the New York Session’s 5:00 PM EST close the next day. In other words, when the market in New York closes on Monday at 5:00 PM, the market in Sydney opens on Tuesday morning in its time zone. This allows many professional forex traders based in New York to pass their order books on to traders based in Sydney for watching at least until the Tokyo opening.
Two hours after the Sydney open, the forex market opens in Tokyo (The Asian or Tokyo session) at 7:00 PM EST and closes at 4:00 AM. Singapore and Hong Kong open two hours after Tokyo at 9:00 PM and close at 5:00 AM. Interestingly, the final Asian Session trading hour when the London Session opens while the Asian session is closing down, makes up one of the busiest forex trading times.
The European and North American Sessions
In the European session, Frankfurt opens at 2:00 AM and closes at 10:00 AM, while the major London forex trading session opens at 3:00 AM and closes at 11:00 AM.
East Cost North American markets open in New York at 8:00 AM and close at 5:00PM. Chicago trading is one hour later and California trading is three hours later.
The forex trading times therefore go full circle throughout the week, and the forex market trades until Friday afternoon’s New York Session closes. At this point, forex trading ends for the week. After the New York close at 5:00 PM EST, the forex market then gives its participants a weekend break to ponder life.
This break runs for the rest of Friday, during all of Saturday and until 5:00 PM EST on Sunday when the Sydney Session opens.
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The Best Times to Trade Forex
You may have noticed when reading the previous section that at several times of the day more than one market is open at the same time. These overlapping times usually provide the greatest degree of liquidity in certain currency pairs, as well as wider pip range movements. This tends to make these more liquid periods better times to trade forex, theoretically at least.
Basically, since more liquidity and a higher volume of trades will often be more beneficial to the speculative forex trader, certain times when trading is heavier in particular currency pairs can give a trader the edge needed to be profitable. This is especially true for traders using short term strategies like scalping or day trading.
The European-North American Overlap: 8:00 AM to 11:00 AM
This overlap is arguable the best time to trade forex. This is the key period when both the New York and London major forex trading centers are open for business. Trading in all the European currencies is heaviest during this period and offers the most liquidity for currency pairs involving the Euro, Pound Sterling and Swiss Franc.
Such especially liquid overlapping times for trading forex would include the important 8:00 AM to 11:00 AM period when the major trading centers of New York and London are both open for business. Frankfurt is also open from 8AM until 10:00AM.
Also, if you are trading the EUR/USD, GBP/USD or USD/CHF currency pairs, then the market for these currency pairs would probably be the most active during that period because they represent the major currency pairs involving the United States and European countries.
The Asian European Overlap: 12:00 Midnight to 3:00 AM
Sydney closes at 1:00 AM, while the Tokyo, Hong Kong and Singapore stay open overlapping with Frankfurt and London at 2:00 AM and 3:00 AM respectively. This time period usually offers the most liquidity for the Japanese Yen, as well as the European Yen crosses.
Another good time to trade forex, in order to take advantage of several different markets being open simultaneously, is between 1:00PM and 3:00 AM as Asian and European markets overlap at different points.
The Tokyo, Singapore and Hong Kong forex markets continue trading throughout this overlap period. The Frankfurt and London markets then open at 2:00 AM and 3:00 AM respectively, and they then overlap with Singapore and Hong Kong until 5:00AM.
This time period can see particularly active trading in the USD/JPY, EUR/JPY, GBP/JPY and CHF/JPY currency pairs.
The Australian Asian Overlap: 9:00 PM to 12:00 Midnight
This is the period during which the New Zealand and Australian markets overlap with the Asian markets of Tokyo, Singapore and Hong Kong. This time period tends to have the most liquidity for the Australian and New Zealand Dollars and their crosses.
Trading in Australia and New Zealand overlaps with Tokyo from 7:00PM and then with Singapore and Hong Kong from 9:00PM until Midnight when New Zealand closes and 1:00AM when Sydney closes.
This makes the overlap period from 9:00PM until Midnight especially good for trading forex as Australia, New Zealand, Tokyo, Singapore and Hong Kong are all open.
This overlapping time frame often sees especially active trading in the AUD/USD, AUD/JPY, EUR/AUD, NZD/USD, AUD/NZD and NZD/JPY currency pairs.
The Worst Times to Trade Forex
Between 5:00 PM and 7:00 PM, the New York forex market has closed and the only other markets which are open are Chicago until 6:00 PM and the West Coast offices of certain U.S. banks that may stay open as late as 7:00PM. You can also trade into the thinner markets in New Zealand that opens at 4:00pm and Australia which opens at 5:00 PM.
This represents a window of time during the trading day, when the market could be thin and so price spreads may widen significantly. Basically, avoiding trading during illiquid time periods and in highly volatile markets can save you money, both in terms of your trading position and in the amount of the bid offer spread you may be quoted for the transaction.
Other times which may not be as advantageous to trade include the Sunday night session, as well as Fridays when the market is looking forward to the weekend and so typically trades counter-trend as positions are squared.
Another risky trading time to trade forex is when important numbers such as U.S. Non-Farm Payrolls come out. If the actual number differs considerably from the market’s consensus expectation, then the exchange rate can shift rapidly to discount the new information as fast as possible.
The First Hour of the Day
According to a recent large-scale survey conducted by Forex.com, traders tend to prefer placing their trades during the first hour of the day. They surveyed 3000 experienced traders and discovered that the majority preferred trading during the first hour of the trading day.
Traders were given the option to choose between four time periods as their preferred time to trade – the first hour of the day, after the first hour and before lunch, after lunch and before the last hour and the last hour of the day. The first hour emerged as the clear favourite across all asset classes, experience levels, geographic regions and timeframes.
35% of all traders surveyed preferred the first hour, followed by 30% preferring the last hour. 18% of traders preferred the time between the first hour and lunch and 16% preferred the time after lunch and before the last hour. This result was even more prominent amongst Forex traders with 38% preferring the first hour followed by 31% choosing the last hour.
This data supports the idea that times during the day when markets overlap – times when it is the first hour of the day for one market and the last hour for another – are the most volatile and tend to see the most trading activity.
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