General Tips

What’s The Ideal Time of Day to Trade Forex?

The forex market is open for business five days a week and at least eight hours each day. However, due to a variance in time zones, you can trade 24 hours a day for the entire week.

GMT (Greenwich Mean Time) is the global base reference time for all open and closing times. This makes it easier to find out when a specific market is open. The ideal time of day to trade forex is when the market is at its most active levels.

This is when spreads (the variation between bid prices and ask prices) tends to decrease. In these instances, less cash goes to the market makers, which enables currency exchanges to take place, leaving more cash for traders to earn personally.

Which Are the Major Forex Exchanges Around the World?

The four leading forex exchanges in the world are New York, London, Tokyo, and Sydney. Therefore, forex traders need to pay attention to the hours when two exchanges overlap.

When more than one exchange is open at the same time, it adds volatility (the rate and extent to which currency or equity prices change) and increases the volume of trades.

It may seem absurd that volatility will benefit traders since traders are supposed to fear market volatility. However, in this instance, more volatility translates to more profit opportunities.

How Do Forex Market Hours Vary Around the World?

The forex market is entirely electronic and operational somewhere around the world between 1700 Hrs. on Sunday and 1700 Hrs. on Friday EST (Eastern Standard Time). Each exchange has its trading hours between Monday and Friday. The four most essential forex periods include:

  1. New York: 0800 Hrs. to 1700 Hrs.
  2. London: 0300 Hrs. to 1200 Hrs.
  3. Tokyo:1900 Hrs. to 0400 Hrs.
  4. Sydney: 1700 Hrs. to 0000 Hrs.

Although each exchange functions autonomously, they all use the same currencies. So, when two exchanges are running, the number of traders actively buying and trading a particular currency increases massively.

The bid and ask prices in one forex exchange directly affect bid and asking prices on all other open exchanges. As a result, that increases volatility and reduces market spread. The following time periods are affected:

  1. 0800 Hrs. to 1200 Hrs. When both New York and London are open.
  2. 0300 Hrs. to 0400 Hrs. When both London and Tokyo are open.
  3. 1900 Hrs. to 0200 Hrs. When both Sydney and Tokyo are open.

The New York exchange is essential to foreign investors because its exchanges mainly comprise the US Dollar which accounts for 90% of all currency exchanges. When the dollar moves, it has a strong ripple effect around the globe.

The best trading time is 0800 Hrs. to 1200 Hrs. overlap of the London and New York exchanges. These two exchanges account for more than half of all currency exchanges.

However, there can be exceptions. The likely trading volume is based on the notion that no major headlines will come to light. A political crisis during otherwise slow trading hours could cause a spike in trading volume and volatility.

Certain economic data can move a market that has a stable release schedule. This includes CPI (Consumer Price Index), unemployment data, trade shortfalls, consumer consumption, and consumer confidence. Knowing when such information is being released can come in handy and enable you to know the best time to trade.

Can High Volume Hours Be Risky?

As a forex trader, you should be careful because forex trades often comprise high leverage. High leverage provides enticing profit prospects; however, it also comes with the risk of losing your entire investment in just one trade.

A study done by Citibank found that only 30% of forex traders break even. However, the study also revealed that about 84% of those polled could make cash in the forex market.

So be careful when trading during high-volume hours. You need to understand what you’re getting into, and once you’re confident enough, you can start making actual trades during these hours. There is a lot of cash to be made just like any other time of the day, but there is also a risk of losing money. So make a point of understanding the forex market well.

Final Thought

All in all, the forex market has high-volume hours that vary depending on the forex market and time zone. However, high-volume hours can be risky because they comprise high leverage, and as a result, they present the risk of losing your entire investment.