One of the secrets to successful forex trading is knowing when to trade. Although the forex market is one market in the world that trades round the clock, you must get your timing right. However, no one can trade around the clock, week after week.
The key is to understand what the best times are to trade forex in the US so that you can make the best of every opportunity from around the world.
Major Forex Centres
Before we get into the details of the best time for trading forex, let us understand more about the forex centres. There are four major forex centres across the world. They are New York, London, Tokyo, and Sydney. The location of these markets makes the forex market a 24-hour market. As an over-the-counter market, forex markets are not centrally managed or regulated. However, there is a network of international banks, brokers, and traders that make up the forex market.
Since the four markets operate from different time zones, the forex market is virtually open 24 hours a day, five days a well. Each day is divided into several sessions and you can plan your trade moves accordingly. The Asia-Pacific session (Sydney and Tokyo) opens first, which is followed by the European session (London), and the last one to open is the North American session (New York).
Forex trading hours of these markets are:
- Sydney 3 pm to 12 am (EST)
- Tokyo 7 pm to 4 am (EST)
- London 3 am to 11 am (EST)
- New York 8 am to 5 pm (EST)
You must remember that the trading hours can slightly vary in March, April, October, and November when nations shift to and from daylight savings or summer times.
Why are the Trading Times Crucial for Forex Trading?
Although the forex market is open throughout the day, it tends to be more active during different sessions. The spreads are especially tighter when two markets in different geographic locations cross over. This cross-over period is often considered to be the best time for trading.
However, the increased activities are generally confined to the currencies found in both locations where the cross-over happens. For instance, a greater trading volume of GBP/USD happens when both the European and US markets are open – that is, between 8 am and 11 am (EST).
Big institutions such as investment banks are often active during the beginning of each trading session. Things tend to get rather busy at the times these biggies are active.
What is the Best Time to Trade Forex in the US?
The US forex market is usually the most active soon after the opening of the New York session at 8 am (EST). During this time, volatility and liquidity are likely to be high as the traders start their opening and closing positions corresponding to the market news of the morning.
Trading Forex During the New York Session
New York session sees the biggest overlap with the London session. Hence the GBP/USD cross can be highly liquid. Furthermore, the New York session is the last trading window to close on the day’s forex trading clock. As such, it often sees high trading volume as traders try to squeeze in a final bit of profit out of the day’s trading news announcements.
Several USD crosses see their highest trading volumes through the New York session. This represents a considerable chunk of the forex market as the USD is involved in around 45% of all daily forex transactions. Some of the most popular forex pairs are as under:
The most popular forex pairs to trade during the London forex session include the major currencies such as the GBP/USD cross or the EUR/GBP cross. This is obvious during the overlap between the London and New York sessions, along with the European market, which operates during almost identical hours to the London session.
Traditionally, the Tokyo-London crossover isn’t as busy as the London-New York crossover as the two sessions are open simultaneously for fewer hours. However, the Tokyo session enjoys a bigger overlap with the Sydney session. The two markets are simultaneously open for five hours between 7 pm and 12 am (EST).
The popular currency pairs during the Tokyo session are USD/JPY or EUR/JPY. The session also sees a lot of liquidity and volatility in the AUD/JPY currency pair during the cross-over between the Sydney and Tokyo session. AUD/JPY is one of the most volatile currency pairs on the market and the second most traded in the Tokyo cross behind USD/JPY.
How to Trade Forex
The most common method of forex trading is through derivatives, along with a rolling spot forex contract. Trading with derivatives allows you to speculate on a particular asset’s price movement without taking ownership of it.
For instance, you can bet on whether the price of a currency pair will increase or decrease by going long or short with derivatives. Your profit and loss margins will depend on the extent to which your prediction is correct.
Do Different Trading Hours and Time Zones Affect Individual Forex Pairs?
The short answer is yes. Certain forex pairs are likely to be more affected by an overlap than others. For instance, the EUR/USD and GBP/USD usually sees increased activity when New York gets into action while London remains fully active.
Generally, a forex pair has greater liquidity when at least one of its markets is open. Hence, the USD/JPY pair will be busiest during the Asian or US sessions, and not so much during the European session. Likewise, the EUR/JPY pair is more active when the European session is open. EUR/USD is less likely to be busy during the Asian session.
However, regardless of the pair you trade, it is important to know what financial data is likely to be published and which sessions are expected to be more volatile. Once you have this data, you can look to trade the volatile or quiet periods as the case may be. Both approaches have their advantages and disadvantages.
It is important to note that no one can predict or suggest a perfect or best time for forex trading. That is something that you will have to figure out with the help of the information you gather from your research and your own experience while trading. What works for another trader may not work for you and hence, you must come up with your own strategies and plans.
Choose a time and currency pair that suits you and not anyone else. You can use the demo trading accounts to practice and get an idea of the whole process. If you trade during different forex market hours, you should remember that:
- The time of the day you trade affects liquidity
- It also depends on the overlap between sessions
- Volatility also varies during overlaps
Some forex traders like high volatility, but some don’t. You should have an effective risk management strategy while trading during different forex market hours.
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