What is the best time to trade forex and why?

Forex trading is available 24 hours a day during weekdays. The forex market, which is already characterized by high volumes of capital flow from all around the world, is even more liquid due to this accessibility. However, not all trading hours see the same degree of liquidity and volume, which can be a major challenge for traders from countries with less developed economies and forex markets.

As a trader, you want a market that has good liquidity and consequently tight spreads. Good liquidity guarantees that your orders will be filled without any difficulty and trading fees will be small. The best time to trade forex depends on the most liquid Forex market hours. Let’s find out when is the time to trade Forex.

What to consider about forex trading times and when to enter the market

• The forex market is open for trading 24 hours a day during weekdays
• Liquidity on the market varies based on the time of day and trading session
• New York, London, Tokyo and Sydney are the world’s financial capitals that create 4 major Forex trading sessions that make 24 hour trading possible
• Sometimes trading sessions overlap, which increases liquidity on the market
• Economic news can cause significant shifts in liquidity on the market
• Tuesdays, Wednesdays and Thursdays are the best weekdays for trading due to high liquidity
• Mondays are usually least liquid and Fridays are highly unpredictable
• It is generally advisable to trade during session overlaps, as they offer increased liquidity and tight spreads

Four forex trading sessions and what they mean for traders

Forex trading is decentralized. Which means that there’s many different places where you can trade currency pairs. Stock market is a centralized exchange, which means that there’s only a single place to go to trade certain company stocks. Yes, there are various stock exchanges, but there’s only certain companies listed on each. The decentralized nature of Forex makes trading 24/5 possible. The best time to trade currency pairs is when liquidity is increased. High liquidity makes buying and selling easier. Markets are moving better, more actively. What’s more, spreads (difference between bid and the ask price) are the smallest.

Each trading session has different liquidity. It is recommended to trade during the highest liquidity hours. London is the most liquid trading session that is followed by New York. The third place goes to Tokyo. The least liquid among the major sessions is Sydney. Let’s discuss each session in more detail.

New York

The New York session is open from 8 a.m to 5 p.m EST on weekdays and can be greatly influenced by market data from the New York Stock Exchange. News from the exchange has a significant effect on the dollar index. The New York session is the primary period for forex traders in North America.

London

The London forex market accounts for roughly 43% of global forex trades. The London session takes place from 3 a.m EST to noon and attracts considerable amounts of capital from all around the world due to its high liquidity.

Tokyo

Tokyo is the prime destination for capital markets in Asia. The session, which takes place from 7 p.m to 4 a.m EST, attracts a lot of trading volume in major currency pairs, such as USD/JPY, and GBP/USD. The USD/JPY pair is particularly prevalent during the Tokyo session, as the yen is the official currency of Japan and heavily affected by the policies of the Bank of Japan.

Sydney

The Sydney session is open from 5 p.m to 2 a.m EST and while it is a smaller market compared to the aforementioned major sessions, the Sydney session sees significant activity during the early hours when the market reopens after being closed after Friday. The Sydney market has the least liquidity and the widest spreads.

Major overlaps

When two of the aforementioned sessions overlap, liquidity increases on the market, which leads to tighter spreads and an overall active market. Traders flock to these periods as they are filled with opportunity for short-term trades, but can also be riskier due to increased volatility in certain currency pairs.

Some of the major overlaps happen between:

• New York/London – The biggest overlap on the forex market happens when the New York and London session overlap between 8 a.m EST to noon. This leads to a period of high volatility and currencies such as the USD, GBP, and EUR are most heavily traded
• Sydney/Tokyo – The EUR/JPY pair is the most heavily influenced pair when Sydney and Tokyo sessions overlap between 2 a.m and 4 a.m EST, which is one of the briefer overlaps on the forex market
• London/Tokyo – The briefest and least active overlap happens between the London and Tokyo sessions from 3 a.m to 4 a.m EST. Most American traders are absent from the market during this overlap due to late trading hours.

Important news and its effect on the Forex market

The best time to trade Forex can vary depending on what type of trader you are. Economic and political news can create a huge volatility on the markets. Most traders avoid trading during such events. If you are a technical trader, trading economic announcements can be dangerous for you. Economic calendar can help you avoid sharp moves caused by the news.

There are traders that trade the news. The place orders during or prior to significant announcements. For news traders, the best time to trade Forex will be totally different from yours.

In addition, there are long term and swing traders that care less about intraday liquidity. Long term traders use economic and political events to conduct technical analysis.

The following economic announcements can cause significant changes on the markets:

• Central bank meetings – This is self-explanatory, as central banks control monetary policy and interest rates, which can have a significant effect on inflation and interest rates of a given currency
• CPI data – Consumer Price Index measures inflation and can shape central bank policy, which affects exchange rates
• Consumer Confidence Reports – These reports measure the sentiment among consumers about the health and direction of the economy of their respective country
• Trade Deficits – When a country imports more goods than it exports, this means an increased cross-border exchange of capital, which affects exchange rates
• GDP – Gross Domestic Product measures the total value of goods and services produced within a country and is one of the primary measurements of the size of an economy
• Consumption data – Changes in consumption habits and rates can affect supply and demand, which affects the economy and exchange rates
• Unemployment rates – Lower unemployment figures lead to a stronger economy and stronger currency

All of the aforementioned factors can shift the balance in favor of one currency in a pair – strengthening the one in relation to other currencies. Traders pay close attention to such measurements to determine the short and long term opportunities within a given currency pair.

Automated trades to take advantage of forex trading hours

Forex trading is available 24/5. As a human, it might be difficult for you to stay awake if the best and most liquid hours such as London and New York sessions take place during midnight in your local time.

Trading algorithms or more commonly known as Robots do not get tired, sleepy or lazy. Algorithms are actively used to day trade most liquid markets. Majority of trades in the Forex market are made by robots.

The best time to trade Forex for intraday traders

Intraday traders are looking for tight spreads, good market moves and great trading setups. As we’ve already mentioned, London and New York sessions are preferred for trading intraday due to high liquidity. In addition, it’s worth mentioning that the best time for forex trading is from Tuesday to Thursday. Mondays are less liquid and most professional traders avoid trading on mondays. Fridays are more chaotic as many traders close positions to avoid uncertainty coming from weekends and swaps. The closing positions affect prices and create more uncertainty.

Main takeaways from the best time to trade forex

• Traders have access to the forex market 24 hours a day on weekdays
• Not all trade hours benefit from the same amount of liquidity
• Four major trading sessions take place on the forex market – London, New York, Tokyo, and Sydney
• Trading sessions can overlap, which creates high liquidity and tight spreads on the market
• Trader can use robots and different order types to execute trades when they are unable to monitor the market
• The best hours for forex trading are the overlaps of two sessions, as this attracts the most amount of liquidity to the market
• The best time for forex trading intraday is between Tuesday to Thursday in the London session as there’s peak liquidity during this time.

FAQs on the best time to trade forex

When can I trade forex?

Traders can place trades on the forex markets 24 hours a day on weekdays. Markets are open 24 hours a day all over the world, but closed on weekends and holidays.

What are forex trade sessions?

Forex trading sessions are regional periods when certain parts of the world engage actively in trading from financial Capitals. There are four major trading sessions – New York, London, Tokyo, and Sydney.

What are the best hours for forex trading?

The best hours for forex trading are when trading sessions overlap. The period from 8 a.m to 12 p.m UTC is especially favorable, because of the overlap between the New York and London sessions.

Is the forex market open 24 hours a day?

The forex market is open for trading 24 hours a day, but only on weekdays. The weekends and national holidays allow limited or no trading at all. However, Banks and big institutions are allowed to trade during Saturdays and Sundays.

Why is the forex market closed on weekends?

The forex market is closed on weekends due to its decentralized nature. There is no central exchange that regulates forex trading, but due to time zone differences, weekends get squeezed and trading is available in some currencies, while unavailable in others.