Many novice forex traders immediately began trading. They obsessively follow different economic calendars and trade right after every data point is released, seeing the 24-hour, five-day-a-week foreign currency market as a handy method to trade all day. This approach not only swiftly depletes a trader’s resources, but it may also exhaust even the most tenacious trader. The forex market operates on the regular business hours of four distinct areas of the globe and their corresponding time zones, as opposed to Wall Street, which follows regular business hours. As a result, trading takes place day and night.
What is the substitute for staying up all night? Traders will have a far better chance of generating earnings within a manageable timetable if they can comprehend the market hours and create proper targets.
The Forex Markets Hours of Operation
Here is a quick rundown of the four markets (in Eastern Standard Time, or EST) to start with:
New York
According to “Day Trading the Currency Markets” (2006) by Kathy Lien, New York (open 8 a.m. to 5 p.m.) is the second-largest FX platform in the world and is closely followed by overseas investors since the U.S. dollar is used in 90% of all deals.
Changes on the New York Stock Exchange (NYSE) may have a direct, strong impact on the value of the dollar. The value of the dollar may change immediately when mergers and acquisitions are completed.
Tokyo
The first Asian trading hub to open, Tokyo, Japan (open 7 p.m. to 4 a.m.), accounts for the majority of Asian trade, barely ahead of Hong Kong and Singapore. The currency pairings that often see some activity include GBP/JPY, USD/JPY, and USD/JPY (or British pound vs. Japanese yen) (British pound vs. Japanese yen). Due to the significant market effect the Bank of Japan (Japan’s central bank) has, the USD/JPY pair is particularly interesting to follow when only the Tokyo market is open.
Sydney
The trading day starts at 5 p.m. Sydney time, Australia (open till 2 a.m.).
Even though it is the smallest of the mega-markets, it has a lot of early activity when the markets open up again on Sunday afternoon because individual traders and financial institutions are attempting to reorganize after the extended break since Friday afternoon.
London
London, United Kingdom (open from 3 a.m. until noon): London is the core of the United Kingdom (U.K.), which controls the majority of the world’s currency markets. According to a BIS analysis, London, one of the world’s major commercial centers, is responsible for around 43% of all international trade. The Bank of England, which supervises the monetary policy of the GBP and sets interest rates, has its headquarters in London, therefore the city also has a significant effect on currency movements. London is often the starting point of forex trends, which is important information for technical traders to remember. Technical trading uses statistical patterns, momentum, and price movement research to find opportunities.
The Best Hours to Trade Forex
The trading hours make currency trading distinct. The week runs from Sunday at 5 p.m. EST to Friday at 5 p.m.
Not all of the day’s hours are equally favorable for trading. When the market is the most active, it is the greatest moment to trade. There will be a more active trading environment when more than one of the four markets is active at once, which results in a greater variation in currency pairings.
Currency pairings often get trapped in a narrow pip spread with just around 30 pip of movement when only one market is active. When significant news is revealed, two markets opening at once may easily see volatility north of 70 pips.
Time Differences in Forex Trading
Trading is most profitable when open markets’ trading hours coincide.
Overlaps result in higher pricing points and more possibilities. Here are the three overlaps that occur daily in more detail:
- U.S./London (8 a.m. to noon): The U.S./London markets have the most market overlap. Since the US dollar and the euro (EUR) are the two most traded currencies, more than 70% of all transactions take place when these markets cross. Given the significant volatility (or price activity), now is the best time to trade. 5
- Sydney/Tokyo (2 a.m. to 4 a.m.): Although this time frame is less volatile than the U.S./London overlap, it nevertheless offers an opportunity to trade at a moment of higher pip volatility. Since these are the two currencies that are most significantly impacted, EUR/JPY is the perfect currency pair to target.
- London/Tokyo (3 a.m. to 4 a.m.): Given the time (the majority of traders residing in the United States won’t be up at this hour), and the one-hour overlap, this overlap sees the least amount of activity of the three overlaps.
News Releases’ effects on Forex Markets
While knowing the markets and how they overlap might help a trader plan his or her trading schedule, one factor that shouldn’t be overlooked is the news’s publication.
A significant news event might boost a typically dull market session. A significant economic statement may cause currency to gain or lose value in a matter of seconds, particularly if it contradicts the prediction.
A trader does not have to be familiar with all of the dozens of economic announcements that occur each daily across all time zones and effect all currencies. Prioritizing news releases into those that should be viewed and those that should be tracked is crucial.
International investors tend to see an economy more favorably the more economic growth it generates. Investment money often moves to nations that are seen to provide high development prospects and, therefore, attractive investment possibilities, which strengthens the currency of the nation.
Additionally, a nation with higher interest rates on its government bonds tends to draw money as international investors seek for high yielding prospects. But attractive yields or interest rates and steady economic development are inextricably linked.
The retail industry tracks consumer spending and fuels economic growth.
Why Do Forex Markets Trade All Hours But Stock Markets Do Not?
Since the same currency pairings are traded on several exchanges worldwide, it might be said that forex markets are “open 24/7.” Even while other stock markets are available worldwide, they are often dealing in local securities and not the same exact equities, since stock exchanges typically list and trade shares of a certain country. For example, while certain international equities are traded in the United States as ADRs, the ADR shares will shut at specific times when the real foreign shares are open, and vice versa.
Why is Forex Liquidity Crucial?
A measure of liquidity is how simple it is to swiftly acquire or sell assets at a reasonable price. The bid/ask spread will be less and you will be able to trade more without changing the market if there is significant liquidity. The gap between the bid and ask, on the other hand, may be quite broad and not particularly deep in an illiquid market. In general, active currency pairings with substantial trading volume are considered liquid currency pairs.
Which Currencies Are the Most Liquid?
The U.S. Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), and Swiss Franc are the world’s most widely traded currencies (CHF). The EUR/USD, USD/JPY, GBP/USD, and USD/CHF are the four important pairings at the moment.
The Conclusion
When planning a trading strategy, it’s critical to take advantage of market overlaps and pay careful attention to news announcements. Trading at more turbulent times and keeping an eye on the release of fresh economic data are two strategies for traders aiming to increase earnings. Due to this balance, both part-time and full-time traders may plan their days in a manner that makes them feel relaxed and ensures that chances won’t pass them by when they take their attention away from the markets or need to get some rest.
