Many first-time forex traders have hit the running markets. They watch different economic calendars and trade voraciously on every data release. Viewing the forex market 24 hours a day, 5 days a week as a convenient way to trade all day long. Not only can this strategy deplete a trader’s reserves quickly, but even the most persistent trader can burn out. Unlike Wall Street, which operates on regular business hours, the forex market operates on the normal business hours of four different parts of the world and their respective time zones. Which means that trading lasts all day and night.
So, what’s the alternative of staying up all night long? Traders need to gain an understanding of market times and set appropriate targets. This way they will have a much stronger chance of making profits on a workable schedule.
- The forex market operates on the normal business hours of four different parts of the world and their respective time zones.
- The U.S./London overlapping markets (8 a.m. to noon EST) have the highest trading volume and are best suited to trading opportunities.
- The Sydney / Tokyo overlapping markets (2 a.m. to 4 a.m.) are not as volatile as the U.S./London overlapping, but they still offer opportunities.
Forex Markets Hours of Operations
First, a brief overview of the four markets (hours in Eastern Standard Time or EST):
New York City
New York (open 8 a.m. to 5 p.m.) is the second largest forex platform in the world. Heavily monitored by foreign investors, as the U.S. dollar is involved in 90% of all transactions, according to “Day Trading the Currency Markets” (2006) by Kathy Lien. New York Stock Exchange (NYSE) movements can have an immediate and powerful impact on the dollar. When companies merge and acquisitions are finalized, the dollar can instantly gain or lose value.
Tokyo, Japan (open from 7 p.m. to 4 a.m.) is the first Asian trading center to open, taking over the largest portion of Asian trading, just ahead of Hong Kong and Singapore. The currency pairs that typically have a fair share are USD / JPY (or US dollar vs. Japanese Yen), GBP / CHF (British pound vs. Swiss franc), and GBP / JPY (British pound vs. Japanese yen). The USD / JPY is a particularly good pair to watch when the Tokyo market is the only one open because of the strong influence the Bank of Japan (Japanese central bank) has on the market.
Sydney, Australia (open from 5 p.m. to 2 a.m.) is where the trading day officially begins. While the smallest of the mega-markets, it sees a lot of initial action when markets re-open on Sunday afternoon. Due to individual traders and financial institutions are trying to regroup after a long break from Friday afternoon.
London, Great Britain (open 3 a.m. to noon): the United Kingdom (U.K.) dominates the currency markets around the world, and London is its main component. The world’s central trading capital, accounts for around 43% of global trading, according to the BIS report. The city also has a major impact on currency fluctuations. As the UK’s central bank, the Bank of England, which sets interest rates and controls GBP monetary policy, is headquartered in London. Forex trends often originate in London, as well as in London. Technical trading involves an analysis of opportunities using statistical trends, momentum, and price movements.
The Best Hours of Forex Trading
Currency trading is unique due to its hours of operation. The week starts at 5 p.m. EST on Sunday and will run until 5 p.m. It’s Friday.
Not every hour of the day is equally good for trading. The best time for trade is when the market is most active. When more than one of the four markets is opened simultaneously, there will be an increased trading atmosphere. Which means that there will be a greater fluctuation in currency pairs.
When only one market is open, currency pairs tend to be locked in a tight pip span of about 30 pips. Two markets, opening at once, can easily see 70 pips moving north, especially when big news is released.
Overlaps in Forex Trade Times
The best time to trade is during overlaps in trading periods between open markets. Overlaps equal higher price ranges, resulting in increased opportunities. Here’s a closer look at the three overlappings that happen every day:
- U.S./London (8:00 a.m. to 12:00 a.m.): the largest market overlaps occur in the U.S./London markets. More than 70% of all trades occur when these markets overlap. As the US dollar and the euro (EUR) are the two most popular currencies to trade, according to Lien. This is the most optimal trading time since the volatility (or price activity) is high.5
- Sydney / Tokyo (2 a.m. to 4 a.m.): this time period is not as volatile as the U.S./London overlap, but still offers a chance to trade in a period of higher pip fluctuations. EUR / JPY is the ideal currency pair to aim for, as they are influenced by the two main currencies.
- London / Tokyo (3 a.m. to 4 a.m.): This overlap shows the least amount of action of the three because of the time (most U.S.-based traders won’t be awake at this time). The one-hour overlap gives little opportunity to watch major pip changes occur.
Impact of Forex Markets News Releases
While understanding the forex markets and their overlaps may help a trader to arrange their trading schedule, there is one influence that should not be forgotten: the release of the news.
A major news release has the power to enhance a normally slow trading period. When a major announcement is made about economic data — especially when it is against the forecast — the currency may lose or gain value in a matter of seconds.
Although dozens of economic releases occur every weekday in all time zones and affect all currencies, there is no need for a trader to be aware of all of them. It is important to prioritize news releases between those that need to be monitored and those that are considered to be of low importance.
In general, the more economic growth a country produces, the more positive the economy is for international investors. Investment capital tends to flow to countries that are believed to have good growth prospects and, subsequently, to have good investment opportunities, leading to a strengthening of the country’s exchange rate.
In addition, a country with higher interest rates through its government bonds tends to attract investment capital as foreign investors pursue high-yield opportunities. However, stable economic growth and attractive returns or interest rates are inexorably intertwined.
Examples of major news events include:
- Interest rate decisions by central banks, given that higher interest rates tend to attract more global investment and capital flows, strengthen the currency
- CPI data, which measures inflation and may have an impact on central bank policy
- Trade deficits or more imports versus exports, resulting in more cross-border capital flows affecting exchange rates.
- Consumer consumption – a major driver of economic growth in the US and globally.
- Central Bank meetings as any remarks are closely monitored for indications of future interest rate movements
- Consumer confidence, which measures how the average consumer feels about the economy and affects consumer spending
- Data on GDP or Gross Domestic Product is a measure of all goods and services produced in a country.
- The unemployment rate, which measures unemployed workers since lower unemployment, tends to translate into better growth and a stronger currency, and vice versa
- Retail trade measures how much is spent by consumers and drives economic growth
The Bottom Line
It is important to take advantage of market overlaps and keep a close eye on news releases when setting a trading schedule. Traders seeking to increase profits should aim to trade during more volatile periods while monitoring the release of new economic data. This balance allows part-time and full-time traders to set a schedule that gives them peace of mind. Knowing that opportunities do not slip away when they take their eyes off the forex markets or need a few hours of sleep.