The Best Times to Trade the Forex Markets (May 2021)

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Currency trading has become a lucrative business for retail traders in recent years. This investment sphere costs speculators a dime to enter the market with the support of the leverage tool. Unlike stocks, forex transactions are tellingly conducted 24/5. This allows investors to involve themselves in trading activities whenever possible. However, sticking to the screen around the clock and trading voraciously does not make them wealthier. Worse, not only does this act exhaust them and interfere in their daily life, but their accounts can be quickly depleted. Therefore, the best time to transact currencies should be part of forex trading strategies.

The Best Times to Trade the Forex Markets

Forex is better known for its 24-hour access. This does not imply that its opening time lasts a day long. In nature, foreign exchange activities are not under the regulation of any centralised exchange or clearinghouse, but rather internationally distributed to a wide range of financial hubs located in different jurisdictions. Accordingly, traders may gain exposure to the market in the office hours of those financial centres. In other words, currency transactions are conducted in distinct trading sessions that take place in separate time zones. Such time windows are also the time when respective banks, hedge funds and other companies operate.

When learning about forex, you will hear about the 3-session system which classifies trading hours into three categories: Asian, European and North American sessions that are also denominated as Tokyo, London and New York sessions respectively. This is because those cities are chief representatives on behalf of their specific regions. Concurrently, the Japanese yen, British pound and US dollar prove themselves three dominant currencies in the market, according to the BIS Triennial Survey in April 2021.

In fact, there are more trading sessions though; four of which are major and include Sydney, Tokyo, London and New York sessions. Those time windows witness the increased activity related to assorted major and cross currency pairs. This may provide the market with high liquidity and resulting tight spreads. In another scenario, the market can become more volatile when swamps of traders suddenly go into the market and have unexpected reactions. Besides primary sessions, other minor time windows should be considered as well, such as Frankfurt, Wellington (Auckland) or Singapore.

Sydney Trading Session

The opening of the Sydney session recovers the forex market’s liquidity. Particularly, Sydney-based banks and companies start trading desk activities at 9 AM and close at 6 PM GMT+11 (Sydney time) on Monday. This time frame is equivalent to the interval from 10 PM GMT+0 on Sunday to 7 AM GMT+0 (UK Time) on the following day. Compared to other mega-markets, Sydney records a smaller trading volume. Popular transactions are mostly associated with the Australian dollar (AUD).

Tokyo Trading Session

Two hours promptly after the Sydney session, the Tokyo market hits the ground running. Accordingly, the Tokyo window lasts from midnight till 9 AM GMT+0, followed by two trading sessions in Hong Kong and Singapore. As one of the leading financial centres, it comes as no surprise that Tokyo attracts the bulk of Asian trading.

The Japanese yen (JPY) itself is considered a safe haven whose value is expected to maintain or increase in global turmoil. This trait, coupled with the Bank of Japan’s endeavours to keep interest rates low, encourages more speculators on Japanese yen-related pairs. Particularly, the market experiences strong action on Japanese yen crosses and noticeable majors such as USD/JPY or GBP/JPY.

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London Trading Session

When the Tokyo session is going to close, its London counterpart makes a way to the market. The 2019 report of the BIS concluded that London is the largest trading capital in the world, with approximately 43% of global transactions taking place there. Headquartered in London, Britain’s central bank indirectly controls market trends by announcing interest rates, launching monetary policies and other important news. Therefore, during the business hours of 8 AM to 5 PM GMT+0, the London session records the constantly livable market awash with retail and professional traders.

Apart from trades with the British pound on one side, transactions on other Eurozone currencies are commonly implemented. Several worth-noting currency pairs that experience large movements include EUR/JPY, EUR/GBP or GBP/USD.

New York Trading Session

Whilst London’s financial centre is on the halfway of operating, New York penetrates the forex market at 1 PM GMT+0 and gradually fades at 10 PM GMT+0. This time frame marks the highest trading volume of forex trading. Although New York is recognised as the second-largest trading hub across the world, the US dollar remains the dominant currency. Roughly 90% of forex trades contain this currency, according to the BIS. Therefore, numerous traders heavily observe the currency’s price movements and respective news released by economic data and political stability of the United States.

Despite the popularity of both London and New York sessions, they do not always translate to the best times to trade forex. In fact, the optimal trading hours still depend on a bunch of factors.

What’s the Best Time to Trade Forex?

Normally, the best time to participate in forex is when the market moves the most actively. That time often falls into the duration of more than one trading session opening.

As far as you are concerned, in the forex market, you will speculate on a couple of foreign currencies. The increased activity of one currency is frequently limited to its respective locale. Therefore, to observe the most movable time of a currency pair, you should open a position when trading sessions of both currencies cross. Provided you bet on the EUR/USD, the suitable time to enter the market is when London and New York sessions concurrently operate.

Based on accounts of four key time windows, there are several points of time that cause sharp market reactions.

Sydney/ Tokyo Overlap

This interval lasts from noon till 7 AM GMT+0. The market at this time looks duller but still opens an avenue for traders to venture on larger price changes in such active pairs as AUD/USD, NZD/USD or AUD/JPY. In this overlap, other minor financial centres in Singapore or Shanghai also start their business

Tokyo/ London Overlap

With the duration of merely one hour (8 AM to 9 AM GMT+0), it is unsurprising that this period charts fewer actions. Indeed, the short interval does not suffice to provide traders much of a chance to observe large pip fluctuations. However, this is also a good time for European currencies-based traders to get into their stride. This overlapping time documents throng of speculators on USD/JPY, CHF/JPY, EUR/JPY and GBP/JPY.

London/ New York Overlap

The recent FXLiquidity analysis infers that liquidity reaches the peak when the London session bumps into its New York counterpart, particularly from 1 PM till 5 PM GMT+0. This elaborates on the powerful status of the euro and US dollar respectively. So, the majority of transactions have one of two currencies on one side. Of which, the EUR/USD is a typical currency pair mostly traded in the market. Also according to the FXLiquidity report, there is the highest trading volume around the closing of the London session and the opening of the New York session.

Other pairings related to the US dollar and European currencies are actively traded in this session crossover. Not only does the London/ New York overlap mark high liquidity and tighter spreads, but it also elevates volatility at some point.

Apart from the best daily times to engage in forex, speculative traders are advised to open a position on weekdays from Tuesday through Thursday. Moreover, they should avoid trading on late Friday or at the end of each month, especially each quarter.

Trading Forex in Session Overlaps: Always the Best Option?

As already mentioned, the market can be highly liquid in session crossovers. Admittedly, the high market capitalisation in these times may produce narrow spreads and enable you to easily find the counterpart to your large transactions without fear of significant price changes. However, the appeal of any given session overlaps results in flocks of traders, many of whom can be poorly educated and hardly know their whereabouts in the market. Furthermore, forex is called gambling for its difficult-to-predict actions. Especially, the forecast becomes less accurate when traders face unanticipated news that profoundly affects the value of financial instruments.

In the worst case, the market can become uncontrollably volatile. Possibly, seasoned and professional traders profit from considerable price movements because they base currency speculation on the technical analysis of indicators or charts. Nevertheless, the cards are stacked against beginners who lack experience and knowledge to see opportunities in challenges.

Therefore, trading forex in session overlaps, especially in the London/ New York crossover, is not always the successful formula for all traders unless you are armed with a sufficiently strong shield to protect yourself from unprecedented risks of the market.

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