Also known as Forex exchange, currency trading or FX, Forex trades in volumes of about 5 trillion dollars every day. This makes the Forex market larger than all the other markets combined. The Forex market can be described as the lubrication that drives the global economy. If your business or country needs to make a deal with another country, it would have to purchase the other country’s currency through Forex exchange.
Although currencies may be traded at any hour of the day, this does not imply that all the trading times or hours have the same opportunities. It is, therefore, crucial to understand the advantage and disadvantage of each trading hour as this will determine how fast your Forex business grows.
The Forex Market Hours of Operation
While Wall Street operates on the normal business hours, FX works on normal business hours of four world zones. This is the main reason why there is trading at any time of the day. While there are some traders who stay up all night long (and make some good money), the smart traders examine and understand the various market hours and set practical and achievable goals. This gives them a better winning chance than their counterparts who trade at all hours of the day, risking burnout which can easily blur their judgment.
In this section, we will give a short overview of the 4 trade zones. Read on and decide what time best works for you!
Market Hours (Eastern Standard Time)
(Operates from 8 am to 5 pm)
New York is the 2nd largest FX platform in the world that is closely followed by foreign investors. This is because according to a post by Kathy Lien on the Day Trading the Currency Markets, more than 90 percent of all the FX trades are executed using the American dollar. This means that any slight change in the New York Stock Exchange can have an instant impact on the US dollar. For instance, if two major companies merge and finalize the acquisitions, the $ can lose or gain value immediately.
(Operates from 7 pm to 4 am)
Tokyo market hour is the 1st trading center to open in Asia. For this reason, most of the Asian bulk trading is carried out during this time. The following are currency pairs that have a significant fair amount of action: GBP/CHF, GBP/JPY and USD/JPY. The bank of Japan has a very high influence on the market especially when Tokyo is the only FX platform open. During this time, the USD/JPY could be an excellent pair to watch out for!
(Operates from 5 pm to 2 am)
Although it can be described as the smallest of all the four trading platforms, the Sydney market experiences a lot of action or initial activities after the long weekend break. Please note that after the long break from Friday afternoon to Sunday afternoon (when the markets start operating again), financial institutions and traders are now regrouping and arranging their next course of action for the week. It is the Sydney market that stomachs all these initial courses of actions.
(Operates from 3 am to noon)
As you probably already know, just like the US, the United Kingdom dominates the currency markets across the globe. According to reports by IFS London, London accounts or is responsible for more than 34% of all the global trading. Also, being a central trading center, the city significantly influences currency changes or fluctuations. This is mostly because the Bank of England is located in the city. If you don’t already know this, the Bank of England is responsible for controlling monetary policies of the GBP and setting interest rates.
As a Forex trader, it is crucial to note that most of the FX trends often come from London. This is the more reason why you should watch this trading platform closely.
The Best Trading Hours
As far as Forex is concerned, the week runs from 6 pm Sunday, to 5 pm Friday. However, as already mentioned, not all hours are suitable for business and traders should, therefore, operate during the most active hours of the day. The most active trading hours is when two or more trading platforms are operating at the same time or what we refer to as overlaps in FX trading times.
Overlaps in FX Trading Times
As already mentioned, overlaps offers an excellent opportunity for trading. Here are the main overlaps that are experienced every single day.
Overlap (3-4 am EST)
Of all the three overlaps, this experiences the least amount of action. This is because most of the US traders are asleep at this time and hence not active in the Forex market. Also, the 1-hour duration is very short for significant developments to occur.
Overlap: (8 am to 12 pm EST)
Most trading activities occur in this overlap. According to Lien, the euro and US dollar are the most common currencies in the Forex market. For this reason, more than 70 percent of all the FX trades happen during this time. Most traders prefer this time because the trading volatility is at the peak.
Overlap: (2-4 am EST)
The volatility level is not as high as during the US-London time. However, the pip fluctuation level is still high and hence a good overlap to watch.
Understanding how the market works and the best hours to trade is very important yes, but not enough. There are other factors that a trader must consider such as choosing the best Forex trading platforms and release of big news.
Big news (especially when the announcement is against the expected forecast), have the capability of instantly lowering or raising the value of a currency. However, it is impossible to keep track of all the news releases being made every day and hence the importance of prioritizing significant news such as trade deficits, GDP data, retail trade, and interest rate decisions.