Many first-time forex traders dive right into the market. They monitor various economic calendars and trade vigorously on each release of data, trying to make the most out of the 24-hour-a-day, five-day-a-week foreign exchange market. However, this strategy can quickly deplete a trader’s reserves and lead to burnout, even for the most persistent.
Unlike Wall Street, which operates on regular business hours, the forex market runs on the normal business hours of four different parts of the world and their respective time zones, allowing for round-the-clock trading.
So why stay up all night? By gaining a better understanding of the market hours, setting realistic goals, and focusing on key events only, traders can have a stronger chance of realizing profits while working a healthier schedule.
Key Takeaways
- The forex market runs on the normal business hours of four different parts of the world and their respective time zones, allowing for round-the-clock trading.
- The U.S./London markets overlap (8 a.m. to noon EST) has the heaviest trading and is likely to provide the most trading opportunities.
- The Sydney/Tokyo markets overlap (2 a.m. to 4 a.m.) is not as volatile as the U.S./London overlap, but it still offers opportunities.
The Forex Markets Hours of Operation
First, here is a brief overview of the four key forex markets (hours in Eastern Standard Time, or EST):
New York
New York (open 8 a.m. to 5 p.m.) is the second-largest forex market in the world, watched heavily by foreign investors because the U.S. dollar is on one side of 88% of all forex trades. Movements on the world’s largest stock exchanges, the New York Stock Exchange (NYSE) and Nasdaq, can also have an immediate and powerful effect on the dollar. When major companies report earnings, provide future guidance, or announce mergers, the dollar may have an instant reaction.
Tokyo
Tokyo, Japan (open 7 p.m. to 4 a.m.) is the first Asian trading center to open. It is also one of the largest, just behind Hong Kong and Singapore. The currency pairs that typically have a fair amount of action are USD/JPY (or U.S. dollar vs. Japanese yen), GBP/USD (British pound vs. U.S. Dollar), and GBP/JPY (British pound vs. Japanese yen). The USD/JPY is an especially good pair to watch when the Tokyo market is the only one open, because of the heavy influence the Bank of Japan (Japan’s central bank) has over the country’s monetary policy.
Sydney
Sydney, Australia (open 5 p.m. to 2 a.m.) is where the trading day and week officially begin. While it is the smallest of the mega-markets, it sees a lot of initial action when the markets reopen on Sunday afternoon because individual traders and financial institutions are trying to regroup after the long pause since Friday afternoon.
London
London, Great Britain (open 3 a.m. to noon). The United Kingdom (U.K.) dominates the currency markets worldwide, and London is its main component. London, a trading capital of the world, accounts for roughly 38% of global trading, according to the latest, 2022 BIS report. The city also has a big impact on global currency fluctuations because it headquarters the Bank of England (BoE), the UK’s central bank that sets interest rates and controls its monetary policy. Some forex trends originate in London, which is a great thing for technical traders to keep in mind. Technical trading involves analysis to identify opportunities using statistical trends, momentum, and price movement.
The Best Hours for Forex Trading
Currency trading is unique because of its round-the-clock operation. The week begins at 5 p.m. EST on Sunday and runs until 5 p.m. on Friday.
The best time to trade is when the market is most active. When more than one of the four markets overlap, trading volumes are likely to be elevated meaning there will be more significant fluctuation in currency pairs.
When only one market is open, currency pairs tend to trade in much tighter ranges, compared to when two major forex markets overlap.
Image by Sabrina Jiang © Investopedia 2021
Overlaps in Forex Trading Times
The best time to trade is during overlaps between open markets. Overlaps usually mean higher price ranges, resulting in greater opportunities. Here is a closer look at three major overlaps that happen each day:
- U.S./London (8 a.m. to noon): The heaviest overlap occurs in the U.S./London markets. Nearly 58% of all forex trades take place in these two markets, making this overlap the most liquid and closely-watched time period for many currency traders. The U.S. dollar and Great Britain’s pound sterling are the world’s first, and fourth most actively traded currencies respectively, and their overlapping trade sessions often offer the highest volatility and ample trade opportunities.
- Sydney/Tokyo (2 a.m. to 4 a.m.): This time period is not as volatile as the U.S./London overlap, but it still offers a chance to trade in a period of higher pip fluctuation. EUR/JPY is the ideal currency pair to aim for, as these are the two main currencies influenced.
- London/Tokyo (3 a.m. to 4 a.m.): This overlap sees the least amount of action of the three because the timing means most U.S.-based traders are still asleep. The overlap also only lasts for an hour, giving little opportunity for large moves to occur.
Impact of News Releases on Forex Markets
While understanding the markets and their overlaps can aid a trader in arranging his or her trading schedule, there is one other factor that should never be forgotten: the news releases.
A big news release can quickly energize a normally slow trading period. When a major piece of economic data is released—especially if it falls outside of the predicted forecast—currency can lose or gain value within a matter of seconds.
Dozens of economic releases happen each weekday across all timezones and currencies, but a trader does not need to keep track of them all. It is important to prioritize news releases between those that need to be watched versus less important ones.
In general, the more economic growth a country produces, the more positively its economy is viewed by international investors. Investment capital tends to flow to countries believed to have strong growth prospects and, subsequently, good investment opportunities, leading to a strengthening of the country’s currency.
Additionally, a country with higher interest rates on their government bonds tends to attract investment capital, as foreign investors chase high yield opportunities. However, stable economic growth and attractive yields or interest rates are inexorably intertwined.
Examples of significant news events include:
- Interest rate decisions by central banks. Higher interest rates tend to attract more global investment and capital flows, strengthening the currency.
- CPI data, which measures inflation and can impact a central bank’s rate policy.
- Trade deficits or imports versus exports, which shows cross-border capital flows and can impact exchange rates.
- Consumer consumption–a major indicator of economic growth in the U.S. and globally.
- Central bank meetings are watched closely by traders for indications of future interest rate moves.
- Consumer confidence, which measures how the average consumer feels about the economy and impacts consumer spending.
- GDP data, or Gross Domestic Product, is a measure of all goods and services produced in a country.
- Unemployment rates, which measure the unemployed workforce. Lower unemployment tends to translate into better growth and a stronger currency, and vice versa.
- Retail trade measures how much is being spent by consumers and drives economic growth.
Fast Fact
It’s becoming increasingly common for forex brokers to provide a market calendar on their platforms, helping clients keep track of market-moving events.
Why Do Forex Markets Trade Around the Clock But Not Stock Markets?
Forex markets are often described as “open 24/5”, as different exchanges around the world trade in the same currency pairs. When one major financial center closes, another opens, creating a seamless 24-hour market from Monday to Friday. In contrast, a stock exchange generally lists and trades shares of companies within a specific country, meaning each exchange follows local market hours. Even when international stock markets are open, they mainly trade in locally listed securities rather than the same exact stocks. While some foreign stocks are listed in the U.S. via American Depositary Receipts (ADRs), the ADRs are still only tradable during U.S. market’s regular business hours.
Why Is Forex Liquidity Important?
Liquidity refers to how easy it is to quickly buy or sell securities at a fair price. If there liquidity is high, the bid/ask spread will be tighter, and you can trade more without moving the market. On the other hand, in an illiquid market, the spread between the bid and ask may be very wide and the volumes may be thin. In general, liquid currency pairs are those that are active and have high trading volume.
Which Are the Most Liquid Currencies?
The Bottom Line
It is important to take advantage of market overlaps and keep a close eye on news releases when setting up a trading schedule. Traders looking to enhance profits should aim to trade during more volatile periods while monitoring the release of key economic data. This balance allows part-time and full-time traders to set a schedule that gives them a peace of mind, knowing that opportunities are not slipping away when they take their eyes off the markets or need to get a few hours of sleep.
