Many Forex traders are entering the market directly for the first time. They follow various financial calendars and actively trade according to every data, trying to get the most out of the Forex market 24 hours a day, 5 days a week. However, this strategy can cause the trader to save quickly and even the cheapest trader to get into a crisis.
Unlike Wall Street, which operates during normal business hours, the Forex market allows for a business environment by operating according to normal business hours and working hours in four different regions of the world.
So why be late? By being more aware of when to trade, setting realistic goals, and focusing on important events, traders can increase their chances of making a profit when healthy time is created.
Main Insights
- The forex market runs on the normal business hours of four different parts of the world and their respective time zones, allowing for round-the-clock trading.
- The U.S./London markets overlap (8 a.m. to noon EST), have the heaviest trading, and are likely to provide the most trading opportunities.
- The Sydney/Tokyo markets overlap (2 a.m. to 4 a.m.), and are not as volatile as the U.S./London overlap, but they still offer opportunities.
Forex Market Trading Hours
First, here is a brief overview of the four key forex markets (hours in Eastern Standard Time, or EST):
New York
New York, USA (open 8:00 AM to 5:00 PM) is the world’s second largest forex market and is closely followed by foreign investors, as 88% of all forex transactions are made in US dollars. Movements on the New York Stock Exchange (NYSE) and Nasdaq, the world’s largest stock exchanges, also have a direct and strong impact on the dollar. When major companies announce earnings, make future guidance or announce mergers, the dollar will immediately appear.
Tokyo
Tokyo, Japan (open 19:00-04:00) is the first Asian trading center to open. It is also one of the largest currencies after Hong Kong and Singapore. .
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 (Japan’s central bank) has over the country’s monetary policy.
Sydney
Sydney, Australia (open 5pm-2am) is the daily trading hub and is the day trading begins. Although the smallest of the major markets, there will be plenty of action when the market reopens in the afternoon as traders and financial institutions try to recover from a long hiatus since Friday afternoon.
London
London, United Kingdom (open 3am to noon). The United Kingdom dominates the global forex market, of which London is a major component. According to the 2022 Bank for International Relations (currently available), London is the world’s largest foreign trade destination, accounting for approximately 38% of global trade. The central bank, the Bank of England (BoE), sets interest rates and controls monetary policy. Some forex trading takes place in London, which is something market traders should keep in mind. Market analysis involves the analysis of trends, trends, and price movements to identify opportunities.
Optimal Hours for Forex Trading
The profit market is unique in that it operates 24/7. The week starts at 5:00 PM EST. Sundays run until 5:00 PM EST. Friday. When more than one of the four markets overlap, trading volume will increase, meaning the currency pair will be more volatile. Compare this to when two major forex markets overlap.
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Understanding Forex Market Session Overlaps
The best time to trade is when open trades overlap. Overlap usually means more costs, which leads to more opportunities.
Here is a closer look at three major overlaps that happen each day:
- U.S./London (8 a.m. to noon): The heaviest overlap occurs in the U.S./London markets. Nearly 58% of all forex trades take place in these two markets, making this overlap the most liquid and closely watched time period for many currency traders. The U.S. dollar and the U.K.’s pound sterling are the world’s first, and fourth most actively traded currencies respectively, and their overlapping trade sessions often offer the highest volatility and ample trade opportunities.6
- Sydney/Tokyo (2 a.m. to 4 a.m.): 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. EUR/JPY is the ideal currency pair to aim for, as these are the two main currencies influenced.
- London/Tokyo (3 a.m. to 4 a.m.): This overlap sees the least amount of action of the three because the timing means most U.S.-based traders are still asleep. The overlap also only lasts for an hour, giving little opportunity for large moves to occur.
How News Releases Affect Forex Markets
Understanding the market and its overlap can help traders plan their trading times, but there’s one important thing to remember: media reports. When important market data is released (especially if it exceeds expectations), profits can drop or increase in seconds. Readers don’t need to keep track of all of this. It’s important to prioritize news that needs attention over less important news.
Generally speaking, the faster a country’s economy grows, the better its economy is viewed by international investors. Capital investment usually flows to countries that are perceived to have good growth and good potential, which in turn makes the country’s profits happy.
Also, countries that charge higher interest rates on government debt will attract capital as foreign investors look for good returns. However, business sustainability and profitability are inextricably intertwined.
Examples of significant news events include:
- Interest rate decisions by central banks. Higher interest rates tend to attract more global investment and capital flows, strengthening the currency.
- CPI data, which measures inflation and can impact a central bank’s rate policy.
- Trade deficits, or imports versus exports, show cross-border capital flows and can impact exchange rates.
- Consumer consumption, which is a major indicator of economic growth in the U.S. and globally.
- Central bank meetings are watched closely by traders for indications of future interest rate moves.
- Consumer confidence, which measures how the average consumer feels about the economy and impacts consumer spending.
- GDP data, or Gross Domestic Product, which is a measure of all goods and services produced in a country.
- Unemployment rates, which measure the unemployed workforce. Lower unemployment tends to translate into better growth and a stronger currency, and vice versa.
- Retail trade, which measures how much is being spent by consumers and drives economic growth.
Understanding Why Forex Markets Trade 24 Hours a Day
The forex market is often described as being “open 24/5” because the same currency is traded on different exchanges around the world. When one major financial institution closes, another opens, creating a 24-hour business environment from Monday to Friday. In contrast, exchanges typically list and trade stocks of companies in a specific country, meaning that all exchanges follow local trading hours. They also often trade regionally listed securities rather than local listings. Although some foreign stocks are listed in the United States through American depositary receipts (ADRs), these stocks can still be bought and sold during normal U.S. business hours.
The Importance of Liquidity in Forex Markets
Liquidity refers to the ease with which a security can be bought and sold quickly at a fair price. If it is more liquid, the bid/ask spread narrows and you can trade more without affecting the market. On the other hand, in an illiquid market, the difference between the bid and ask prices can be very large and the supply very small. Generally speaking, liquid currencies are those that are active and have a high market value.
The Most Liquid Currencies in the Forex Market
The most traded currencies in the world include the US dollar, euro, Japanese yen, British pound, Australian dollar, Canadian dollar, and Swiss franc. The four major currency pairs are EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
Final Thoughts
It is important to take advantage of overlapping markets and pay attention to the media when creating a trading opportunity. Traders looking to improve their results should focus on trading during more volatile periods while watching for important trading data to be released. Know that opportunities do not disappear when they take their eyes off the market or need a few hours of sleep.
