Forex market trading hours: what is the best time to trade?

The fact that you can trade forex around the clock is one of the great advantages of the market and the reason why it’s so popular with traders. However, even though the market may be open, it doesn’t mean it’s active 24 hours a day and if you want better results, you need to trade when there is enough volume and activity for substantial price movements.

Forex market trading hours: what is the best time to trade?

Unlike the stock market, forex is a decentralized network and transactions don’t rely on the operation of a physical exchange. Instead, forex trading can be conducted around the clock besides weekend and holidays where major banks are closed.

Trading Hours

Trading sessions

In general, there are four major sessions across the world and due to the difference in time zones, there is always one available to facilitate trading. However, it’s important to note that each trading session favors different currency pairs and there are different times in each session where traders are more active as well.

If you want to know when you can trade forex, these are the four major sessions you should consider:

  • Sydney (12 a.m. – 9 a.m.)
  • Tokyo (2 a.m. – 11 a.m.)
  • London (10 a.m. – 7 p.m.)
  • New York (3 p.m. – 12 a.m.)

As you can see from the trading session hours posted above, there are times where some of these sessions are open simultaneously and their trading hours overlap.

Also, you should remember that unlike the stock market, in forex, you can trade any currency pair regardless of the currently available trading session. Therefore, during the times where two markets are open at the same time, the trading volume in some currency pairs doubles up and activity skyrockets.

During a trading session overlap, there are more buyers and sellers conducting transactions and as such, trading volume increases along with market volatility while spreads decrease. A decrease in spreads means that smaller market movements are needed to realize a profit and more money goes to traders since they don’t have to pay their brokers a higher spread fee for each trade.

Since a trading session overlap provides for more trading volume and heightened volatility, it promises higher price movements in the exchange rates between currency pairs. However, as we mentioned above, each trading session has its own preferred currencies, and this is something you need to take into account when deciding which currency pair you should be trading at certain times. 

As a general rule, each trading session tends to gravitate towards the local currency of the region. For example, the European session favors currency pairs that consist of the EUR (euro) and GBP (British pound) as these are more actively traded pairs for this session. For the American session, pairs that include the USD (US dollar) or CAD (Canadian dollar) are most active.

 

The most favorable trading hours

If you are looking for the most advantageous time to trade where liquidity is the highest and the spreads are at the lowest then you only need to look at the trading session overlap of the two largest financial markets in the world – London and New York.

In fact, more than 50% of all forex transactions take place during these two trading sessions. There is such a high trading volume when the London and New York markets converge that it undoubtedly provides the most favorable trading conditions for currency traders.

Therefore, if you want to increase the efficiency of your trades and get the most bang for your buck, you may be interested in scheduling your trades during this short window where these two trading sessions overlap.

If you take into consideration that EUR/USD is the most popular currency pair in the market and that the overlap of the European and American trading sessions is the period where most traders are active, it makes sense that EUR/USD traders will enjoy more profit potential with bigger market moves when trading during this time.

 

A word of caution

Volatility is what creates opportunities for traders in the forex market, however, it’s also important to ensure that you are positioned to bear the risk that comes with the increased price fluctuations.

After all, currency trading is a leveraged instrument and the higher volatility increases your exposure to downside risk and potential losses as well as payoffs.

The effects of news releases are particularly pronounced when more traders are active in the markets and can drive market sentiment and direction to new heights even though most of the time, their impact can be short-lived.

Beginner traders who are not as experienced with the market risks should ensure that they don’t overtrade during volatile markets and they get in touch with their trading specialist to stay informed about potential developments that can affect their trading.

 

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