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Traders' views - Forex

When's the best time of the day to trade forex?

By , 16 May 2012

Timing is a critical element in foreign currency trading. Sure, forex is a 24-hour market that allows you to make money all the time, but not all times are created equal in this world and there are some key moments – 3pm being one of them.

The forex market is a 24-hour rolling behemoth, sometimes a rollercoaster of volatile ups and down. This allows investors from around the world to trade during normal business hours, after work or even in the middle of the night. So there's no rush, and it often pays to be relaxed, laid back – maybe wait until your lunch is fully digested.

This is because the currency markets aren’t always frenetic. Yes, the currency market is generally the most liquid, but it's more tricky to turn a profit if the market is at one of its quieter times.  

What's more, you don't want to be trading for a few hours and then miss a big jump in volatility later in the day. It's therefore very useful to know which are the best times and the best days of the week to trade – the times when there's more volume. You might also want to read our article on what are the best news signals for forex traders.

A 24/7 market

The foreign exchange market has three main trading sessions each day: the London session, the New York session and the Tokyo session, also known as the Asian, European, and North American sessions. Most trading activity still takes place in London these days, where almost a third of all transactions take place, while New York’s share is 16 per cent and Tokyo’s has slipped to a tenth due to the growing influence of Singapore and Hong Kong. Singapore has become the fourth largest exchange market globally, and Hong Kong has eclipsed Switzerland to occupy the fifth spot.


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Also it's worth noting that the foreign exchange is not actually a 24/7 market, as it takes a breather at the weekend but is 24-hour during the week. The normal forex market hours are 10pm GMT Sunday to 10pm Friday. (Now that we're in daylight saving times it complicates matters a tad, but I'll let you work that out!)

But essentially, the North American session in New York is five hours behind the UK so the forex market's full trading sessions are as follows:

 

Region

City

Open (GMT)

Close (GMT)

Europe

London

8:00 AM

5:00 PM

Frankfurt

7:00 AM

4:00 PM

America

New York

1:00 PM

10:00 PM

Chicago

2:00 PM

11:00 PM

Asia

Tokyo

midnight

9:00 AM

Hong Kong

1:00 AM

10:00 AM

Pacific

Sydney

10:00 PM

7:00 AM

Wellington

10:00 PM

6:00 AM

 

The forexmarkethours.com website also provides another view of which sessions are active at any point anywhere you are in the world.

The best times to trade FX

As you can see, as most sessions start there's a period when another session is still open at the same time – the times when there's by far the most volume being traded. For example, London and US markets are open from 1pm-5pm GMT, while both the Tokyo and London sessions are open between 8am-9am GMT. These, then are the busiest time for trading since traders who wish to purchase currency from another continent can do so.

Of all the sessions, the London session more often than not has the most market movement as it takes in trade from a number of European countries and is the main trading hub for numerous others around the world. The US market is the next most busy after London.

So the few hours when these two markets overlap is the super-session that can typically present traders with the best forex trading opportunities for lots of market activity and action and money-making opportunities.

The 3pm rule

This means that the best time to trade is actually at 3pm since this is the period when the London market is coming to an end and more buyers and sellers are warming up in preparation for the New York session. Also traders who mostly trade with currency pairs based on the dollar will find the most volume in the US trading session. 

During this time, currencies tend to be much more volatile as buyers and sellers bid for prices and negotiate last minute deals before the European market shuts up shop for the day. The drastic change in market prices during this period allows traders to create profit from these movements.

The best day of the week to trade

According to research, the best days of the week to trade are from Tuesday to Wednesday, as well as Friday, when things can get a bit hectic as the week comes to an end.

The most movement in these days and times is generally in the four major pairs: EUR/USD, GBP/USD, USD/CHF, USD/JPY.

For many traders, the best way to generate the biggest profits is to ride the market's momentum. Many traders therefore thrive on volatility – the further the market jumps or falls, the greater opportunity there is to make money.

Read the BullBearings introductory guide to forex.

 

Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.

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