Best Time to Trade Forex

Maurice Draine

Contributor, Benzinga

January 21, 2019 Updated: July 8, 2020

Forex, also known as foreign exchange, FX or currency trading, trades in volume of $5 trillion per day. This is larger by itself than all other markets combined.

The forex market provides the lubrication necessary to make the global economy function. When a business or government needs to purchase goods or services from another country, forex is where the other country’s currency may be purchased. Because currencies exist around the globe, there is always a currency somewhere which can be traded at any time, day or night.

But just because currencies may be traded 24 hours a day doesn’t mean all trading hours offer equal opportunities. Understanding the advantages and disadvantages of each hour can make a significant difference in your Forex trading success.

Trending Cycle

The ability to trade 24 hours a day is mostly a function of the different time zones each the country’s currency listed on the exchange. The need to be able to sell or purchase currencies at any time is also another key reason why currencies are traded around the clock. Domestic markets, such as the New York Stock Exchange, open at 9:30 a.m. EST and close at 4:00 p.m. EST every day, Monday through Friday.

Forex, on the other hand, opens at 5 p.m. EST on Sunday and remains open until 4 p.m. EST Friday. There are technical reasons why certain times are better to trade than others. But first, you must account for the most important factor in trading – yourself.

It may be tempting to trade at all hours of the day. However, burnout can quickly set in and blur decision-making. Technical traders can benefit from having set trading hours where patterns may be compared against one another against the same time frame. For the fundamental trader, news releases are often released on the same day or at the same time, making the planning of possible trades more predictable in your weekly trading schedule.

Market Hours

Forex is a network of international exchanges and brokers. Trading hours are determined when each participating country’s exchange is open. The first step in determining the best time to forex is to understand when each major market is open. There are four major markets:

• Sydney – Opens at 5 p.m. EST and closes at 2 a.m. EST
• Tokyo – Opens at 8 p.m. EST and closes at 4 a.m. EST
• London – Opens at 3 a.m. EST and closes at 12 p.m. EST
• New York – Opens at 8 a.m. EST and closes at 5 p.m. EST

Even though markets open and close throughout the day, it doesn’t mean a particular country’s currency stops trading. Local markets provide domestic banks, businesses, fund managers, and investors to actively buy and sell their local currency in the most transparent time of the trading cycle. The ability to trade any currency at any time still exists throughout the day.

However, trading domestic currencies when the local market is closed may expose traders to unknown market factors which could impact valuations by the time the local exchange opens again.   If you’ll be focusing on trading a single currency, consider setting your trading hours to match the time the local exchange is open.

Trading your preferred currency during the open market hours will provide the best liquidity.

Market Overlaps

A market overlap exists when two exchanges are open at the same time. There are fifteen foreign exchanges. But the four markets mentioned earlier are the largest and most important. Two markets are open simultaneously:  

• Sydney and Tokyo overlap between 8 p.m. EST and 2 a.m. EST
• London and New York overlap between 8 a.m. EST and 12 Noon EST

During market overlaps, most traders are active. More forex traders mean the markets are more volatile. Although volatility may be feared by investors, it does provide price movements. When only a single market is open, prices can stagnate. Stagnation results in fewer trades and less opportunity to buy and sell currencies. So, when markets overlap and volatility increases, so too does the ability to trade in a more liquid and hopefully profitable market.

News Impacts

Markets move for two reasons, investor sentiment about the future and news that breaks during the present. News releases can shape how investors feel about the long-term prospect of any given currency and set scheduled entrance and exit points. News used for long-term investing is usually released at predetermined dates and times, planning for all outcomes possible. Some of the major news releases used in Forex trading include:

• Retail sales figures
• Non-farm payrolls
• Unemployment rates
• Consumer price indexes
• Gross domestic product
• Interest rate announcements
• Consumer confidence indexes

These and other regular news releases can be useful to determine which currencies may be strengthened or weaken against another currency. Understanding how one or more economic indicators impact currency pairs can help fundamental traders. Where 24-hour trading becomes difficult is when sudden, unexpected news shakes the marketplace.

If a major news event occurs overnight, traders may be exposed to a tremendous downside if unable to trade until the next morning. Unlike the New York Stock Exchange, which opens and closes daily and has the ability to halt trading, forex never closes – even while you are asleep.

Setting a Schedule

The number one way to avoid burnout while maintaining consistency in your trades is to set a schedule. Examine what works best for you and your family. From there, choose each of the following to narrow down your most optimal trading time:

• What time each market is open
• When markets overlap for the currency or currencies you trade
• When important news announcements are made

You may find the slower times before overlaps occur as a time to prepare for your upcoming trades. Or perhaps a news release opens an opportunity outside of your schedule. Flexibility may present short term opportunities, but consistency usually wins in the long run.

Final Thoughts

Expand your schedule to include reading news releases, researching potential trades, and furthering your general forex knowledge. Doing so will improve your trading success.