What Are The Best Times To Trade Forex And For What Reasons?
There are many elements of forex trading that make it both unusual and highly desirable, but one of the most interesting is the fact that the market is open almost constantly.
Whilst it is not open 24 hours a day, seven days a week, it is open for five and a half days per week, meaning that regardless of when you trade and where you live, there is always an opportunity to invest, buy and sell.
This is wholly unlike the rest of the financial markets, which typically have very limited trading hours that require traders to either focus their investments into just a few hours of the day or to diversify across various continental markets.
It also means that as long as you have the prop firm funding to do so, you can invest whenever you like at any hour of the day. But should you?
Whilst you can invest whenever you like, you do not necessarily have to, and there are points during the day when trading activity and volatility are at its peak, unlocking opportunities for day traders, short-sellers and long-term investors alike.
Here is why forex trading hours are so unusual, what rookie traps to avoid and when you should trade to make the most of the market.
What Makes Forex Trading Hours So Strange?
Forex is often characterised as a 24-hour market that outside of a day and a half at weekends is always moving, but it is perhaps best to think of the forex market as four separate markets which overlap based in four separate markets
In order of opening times, here are the four main forex markets
Sydney, Australia.
Tokyo, Japan.
London, England.
New York, United States of America.
Generally speaking, this means that there is market activity at any hour of the day; however, certain currency pairs will only be traded at certain times, and this is where one of the most common rookie mistakes in forex is commonly made.
What Is The Biggest Rookie Error In Forex?
A lot of new forex traders assume that you need to focus on the market in totality. The assumption is that you need to keep track of every data release, every shift in the market, everything.
However, this is simply not realistic; traders often overtrade as it is, and trying to manage the entire market is a recipe for burnout.
There are two ways around this; one is to focus exclusively on the nearest stock exchange to you, and the other is to plan around the points the currency pairs you trade.
When Should You Trade Forex?
Ultimately, the best time to trade forex is during peaks of trading activity, which is usually when there are overlaps between the four markets.
Higher trading volumes mean more volatility, which in forex means there are greater fluctuations in value for the various currency pairs, allowing you to maximise your potential profits.
By contrast, a quiet market means much tighter ranges for sales and little opportunity for big news stories to provide volatility to the market.
With that in mind, here are some of the best times to trade forex.
When The Sydney Market Opens
The day-and-a-half lull following the close of the New York market on Friday means that traders will often want to act as quickly as possible, meaning that a lot of initial action takes place within the first few hours of the Sydney market opening.
This will quickly balance itself out, but it is a point where there are a lot of opportunities.
The New York/London Overlap
By far the busiest time for forex, over half of all trades take place between these two markets, with the US dollar and the pound sterling being two of the largest currencies in the world.
When the two markets overlap for four hours each day, the market is perhaps at its most volatile outside of major news events.
The Sydney/Tokyo Overlap
A particularly major overlap for EUR/JPY pairs, the two hours that Sydney and Tokyo overlap provide a great degree of volatility to take advantage of, particularly right at the start of the week before the US and UK markets open.
The London/Tokyo Overlap
It is open for just an hour and takes place when a lot of the market is still asleep, but there is the chance for a remarkable amount of action, although particularly gigantic moves are unlikely, given there is just 60 minutes of overlap.