Best Time to Trade Forex: A Guide

Many new Forex traders dive straight into the market. They monitor various economic calendars and actively trade with each data release, trying to make the most of the 24 hours a day, five days a week forex market. However, this strategy can quickly deplete a trader’s reserves and lead to burnout even for the most persistent.

Unlike Wall Street, which operates during regular business hours, the Forex market operates during normal business hours in four different parts of the world and their respective time zones, allowing trading around the clock.

So why stay up all night? By better understanding market hours, setting realistic goals, and focusing only on key events, traders can have a better chance of making a profit while working on a healthier schedule.

Forex markets: opening hours

First, here’s a quick overview of the four key Forex markets (hours are Eastern Standard Time or EST):

New York

New York, USA (open from 8:00 to 17:00) is the second largest Forex market in the world and is closely watched by foreign investors as the US dollar is involved in 88% of all Forex trades. Changes in the world’s largest stock exchanges, the New York Stock Exchange (NYSE) and Nasdaq, could also have an immediate and powerful impact on the dollar. When large companies report earnings, make guidance for the future, or announce mergers, the dollar can react instantly.

Tokyo

Tokyo, Japan (open from 19:00 to 4:00) – the first Asian shopping center to open. It is also one of the largest, just after Hong Kong and Singapore.

The USD/JPY pair is especially good to watch when the Tokyo market is the only one open, due to the strong influence of the Bank of Japan (Japan’s central bank) on the country’s monetary policy.

Sydney

Sydney, Australia (open from 17:00 to 2:00) – the trading day and week officially begin here. Although it is the smallest of the megamarkets, it is seeing plenty of early action when markets reopen Sunday afternoon as individual traders and financial institutions try to regroup after a long pause that began Friday afternoon.

London

London, UK (open from 3:00 to noon). The United Kingdom dominates foreign exchange markets around the world, with London being its main component. According to the BIS 2022 report (latest), London is the largest foreign exchange trading center in the world, accounting for approximately 38% of global trade.

The city also has a major influence on global currency fluctuations as the Bank of England (BoE), the UK’s central bank, sets interest rates and controls its monetary policy. Some forex trends originate in London and technical traders should be aware of this. Technical trading involves analysis to identify opportunities using statistical trends, momentum and price movements.

Best Hours for Forex Trading

Currency trading is unique in that it operates 24 hours a day. The week starts at 5:00 pm EST on Sunday and runs until 5:00 pm on Friday.

The best time to trade is when the market is most active. When more than one in four markets overlap, trading volumes are likely to increase, meaning currency pairs will move more widely.

When only one market is open, currency pairs tend to trade in much tighter ranges compared to when the two major Forex markets overlap.

Overlaps in Forex trading time

The best time to trade is when open markets cross. Overlaps usually mean higher price ranges, which leads to more options.

Here’s a closer look at three major coincidences that happen every day:

• USA/London (from 8 am to noon): The strongest overlap occurs in the US and London markets. Almost 58% of all Forex trades take place in these two markets, making this the most liquid and closely watched time period for many currency traders. The US dollar and British pound are the first and fourth most actively traded currencies in the world respectively, and their overlapping trading sessions often offer the highest volatility and widest trading opportunities.
• Sydney/Tokyo (2:00 to 4:00): This time period is not as volatile as the US-London crossover period, but it still provides an opportunity to trade during higher pip swings. EUR/JPY is an ideal currency pair to target as these are the two major currencies it influences.
• London/Tokyo (from 3 to 4 am): This coincidence results in the least amount of action of the three, as the timing means most US traders are still asleep. The overlap also lasts only an hour, giving little opportunity for large movements.

Impact of news releases on Forex markets

While understanding the markets and their crossovers can help a trader create his trading schedule, there is another factor that should never be forgotten: news releases.

A big news release can quickly revive a typically slow trading period. When an important piece of economic data is released, especially if it goes beyond what was forecast, a currency can lose or rise in value within seconds.

Every weekday there are dozens of economic news releases in all time zones and all currencies, but a trader does not need to keep track of them all. It is important to prioritize your news releases between those you need to watch and those that are less important.

In general, the more economic growth a country achieves, the more positively its economy is perceived by international investors. Investment capital tends to flow to countries that are considered to have good growth prospects and therefore good investment opportunities, resulting in a stronger country’s currency.

Additionally, a country with higher interest rates on its government bonds tends to attract investment capital as foreign investors chase high yield opportunities. However, stable economic growth and attractive yields or interest rates go hand in hand.

Examples of significant news events include:

• Interest rate decisions of central banks. Higher interest rates tend to attract more global investment and capital flows, strengthening the currency.
• CPI data, which measures inflation and can influence the central bank’s interest rate policy.
• Trade deficits, or imports relative to exports, reflect cross-border capital flows and can affect exchange rates.
• Consumer consumption, which is a leading indicator of economic growth in the United States and around the world.
• Traders are closely watching central bank meetings for signs of future changes in interest rates.
• Consumer confidence, which measures the average consumer’s attitude toward the economy and influences consumer spending.
• Data on GDP, or gross domestic product, which is a measure of all goods and services produced in a country.
• The unemployment rate, which measures the unemployed labor force. Lower unemployment typically leads to improved economic growth and a stronger currency, and vice versa.
• Retail that measures how much consumers spend and drives economic growth.

Bottom line

When creating a trading chart, it is important to take advantage of overlapping markets and keep a close eye on news releases. Traders looking to increase profits should aim to trade during more volatile periods while monitoring the release of key economic data.

This balance allows part-time and full-time traders to set a schedule that gives them peace of mind knowing that opportunities won’t slip away when they take a break from the markets or need a few hours of sleep.