If you are new to forex trading, you might be too eager to hit the market to start trading straight away. You would be watching each trade move, reading up volumes of data, keeping an eye on the economic calendars, and more throughout the day.
You might be afraid that if you slip up, you might lose out if you don’t follow the details 24-hours-a-day, five-days-a-week.
However, even though the forex market is a market that never closes, you cannot keep on watching the trade all the time. Doing so not only depletes your reserves quickly but also can result in burnout.
So, how can you stay away and yet stay on top of things? Is there something like the best time for forex trading in the USA or should you stay up all night, so you don’t lose the opportunity to make some profits?
If you are looking for answers, read on…
Key points to note:
Before we discuss in detail the best time to trade, let us reiterate some key points.
- The forex market functions during the normal business hours of four different parts of the world – according to their respective time zones
- The U.S./London markets overlap (8 a.m. to noon EST) sees the heaviest trade volumes and is best for trading opportunities
- The Sydney/Tokyo markets overlap (2 a.m. to 4 a.m.), while not as volatile as the U.S./London overlap, still offers ample trading opportunities
Hours of operation
Again, to know what the best time for forex trading is, it is important to get a basic idea of the four markets (hours in Eastern Standard Time, or EST):
New York forex market is the second-largest in the world and is open from 8 a.m. to 5 p.m. It is closely watched by foreign investors because the U.S. dollar is part of 90% of all trades. Furthermore, movements in the New York Stock Exchange (NYSE) usually have an immediate and powerful effect on the dollar movement. For instance, when companies merge, or acquisitions are finalized, the dollar might gain or lose value instantaneously.
Tokyo forex market is open from 7 p.m. to 4 a.m. It is the first Asian forex market to open and deals in the biggest volume of Asian trading, ahead of Hong Kong and Singapore markets. The currency pairs with a reasonable amount of action in Tokyo are USD/JPY, GBP/CHF, and GBP/JPY. The USD/JPY makes an interesting pair to observe when the Tokyo market is the only one open as the Bank of Japan has a heavy influence over the market.
The forex market in Sydney opens from 5 p.m. to 2 a.m. and is the market where the official trading day begins. Although it is the smallest of the four, it sees a lot of initial action when it reopens on Sunday afternoon after the lengthy break since Friday afternoon.
London market opens from 3 a.m. to noon. The U.K. dominates the currency markets worldwide, and London is its main cog. London accounts for roughly 43% of global trading. It has a big impact on currency fluctuations because the Bank of England sets interest rates and controls the monetary policy of the GBP. It is no wonder that several forex trends originate in London. If you are a technical trader, you should bear this in mind.
Read Also: Central Banks: How They Affect Forex Prices
The Best Hours for Forex Trading
That brings us back to the question on hand – best hours for forex trading.
Forex trading is unique because it has unique hours of operation. A typical week begins at 5 p.m. EST on Sunday and extends until 5 p.m. on Friday. That doesn’t mean every hour is equally good for trading – the best time would be when the market is most active. If more than one market is open simultaneously, there would be more significant fluctuation in currency pairs.
If only one market is open, currency pairs are likely to get locked in a tight pip spread of just 30 pips of movement. If two markets are open at once, there can be movements of 70 pips or so, especially when some big news is released.
Overlaps in Forex Trading Times
The best time for forex trading is during overlaps in trading times amid the open markets. Overlaps result in higher price ranges, leading to greater opportunities. Three overlaps happen each day:
U.S./London (8 a.m. to noon) – This is the heaviest overlap that occurs within the U.S./London markets. Over 70% of all trades happen during this overlap as the USD/EUR are the two most popular currencies to trade. This is considered the most optimal time to trade because the price activity or volatility is high.
Sydney/Tokyo (2 a.m. to 4 a.m.) – Although this is not as volatile as the U.S./London overlap, it still offers a fair opportunity to trade during a period of higher pip fluctuation. The EUR/JPY is the ideal currency pair to target in this market as these are the two main currencies influenced by it.
London/Tokyo (3 a.m. to 4 a.m.) – This overlap generally sees the smallest volume of trade because of the time difference. As most U.S.-based traders won't be awake at this time, the one-hour overlap gives them hardly any opportunity to watch large pip changes that may happen.
Impact of News Releases
While an understanding of the markets and their overlaps can help your forex trading performance, you should also keep an eye on another factor. The release of the news can have a big influence on your forex account. Such news has the power to enhance a slow trading period. Any economic data that goes against the predicted forecast can result in gain or loss within a matter of seconds.
You should prioritise which one to watch and what to monitor. Always watch out for significant news events such as:
- Interest rate decisions by central banks
- CPI data that measures inflation
- Trade deficits versus exports reports
- Consumer consumption reports
- Consumer confidence reports
- GDP data
- Unemployment rate reports
- Retail trade measures reports
If you are a forex trader, you must take advantage of market overlaps and keep a close eye on news releases while setting up a forex trading schedule. If you wish to increase profits, you should aim to trade during more volatile periods while watching the release of new economic data. This is the most balanced method, and it allows you to set a schedule without losing any opportunity.