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One of the many advantages of the Forex market is that it is open for trading 24 hours a day. Unlike the stock market, the currency market operates according to the regular working hours of three trading centers located in different time zones. Traders are free to trade how and when they want, based on their specific interests.
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Objectively, there is no best time to trade for a Forex trader – it all depends on individual preferences, goals and trading strategies. In this article, we will look at the effect of day and night in different parts of the world on different currency pairs, and therefore on your trading. We will also focus on the two main underlying forces – supply and demand – to determine the best times to trade Forex.
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Liquidity – the ability to find a counterparty for each transaction – can be a problem in some financial markets, but not in Forex. Although liquidity is not important when choosing the best time of day to trade forex, it is worth some background knowledge. Most traders trade with a market making broker who is always ready and willing to fill an order.
In such cases, problems can arise when the agent himself has problems executing interbank orders. An example of this occurred in the movement of the CHF on January 15, 2015, when the Swiss National Bank lifted its peg to the euro – a gap is a gap for all. Forex liquidity is a true miracle, and price gaps are so rare that it usually takes a novice trader several months of trading before they see it on their own.
Volatility is a measure of how strong price movements can be at a given time of the day, and it varies widely for each pair and at each time of the day in the currency market. Being able to understand volatility is essential for traders, as most trading strategies are incompatible with periods of high volatility. Market testing clearly indicates that adjusting your trading plan to a preferred volatility strategy can mean the difference between big losses and big profits, all other things being equal.
For example, an oscillator-based trading strategy that works best for various markets and “bounces” off key levels will not benefit much from breakouts at high-volatility levels. Whenever you are creating or analyzing a strategy, know what level of volatility it will work with and apply it. Volatile periods are not always the best time of day to trade Forex.
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Why do volatility levels change by instrument, by day, and why does the price move? The answer is simply supply and demand. The market, Forex, or anything else, is moved by a large number of pending orders. The more there are and the higher the volume, the more volatility there will be in the market. Now let’s see who are the main players in the market.
Organizations place the largest orders in the largest quantities and between specified times. Unlike private traders who are free to trade as they wish, institutions operate according to the business hours of the trading capitals of the world. Therefore, the 24-hour Forex trading day is divided into three international trading sessions: Asia-Pacific, London/Europe and North America.
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The trading day in Australia officially begins when the Sydney and New Zealand institutions open at around 9:00 AM (GMT+10), kicking off the Asia-Pacific trading session. In the next two hours, they are joined by Tokyo, where most of Asia’s currency trading takes place, followed closely by Hong Kong and Singapore.
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It comes at the start of the Asia-Pacific session on Sunday evening as the currency market opens for the week and individual traders and institutions try to stabilize the potentially important events of the weekend. This is the only time of the week that gaps appear regularly, meaning unless gaps are what you are looking for, weekend trading is not the best time to trade Forex.
At 7:00 GMT, the Asia-Pacific session is slowly giving way to the London-Europe session. Frankfurt – Europe’s financial heart – starts an hour earlier than London, but this delay in activity is mostly ignored. At 12:00 GMT, the North American trading session begins, starting with New York and then Los Angeles. After dark in Los Angeles, the markets will slow down and end the current trading day. As world trading sessions gradually overlap, there is some overlap.
Market volumes and prices can go crazy in the morning. The market refers to press releases for all opening hours that indicate the window in which the market operates starting from the previous closing bell. An experienced trader can spot the right patterns and make quick profits, but a less skilled trader can suffer heavy losses as a result. So if you’re new, you might want to avoid trading during these volatile hours, or at least for the first hour.
For seasoned day traders, however, the first 15 minutes after the opening bell are prime time, usually offering some of the day’s biggest trades in early trends. Expert trading expert Markus Gabel shares his trading strategy in the free webinar below.
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Morning hours are key times for monetary policy makers to make announcements and other important press releases. Early in the day when institutional traders are most active is also the best time of day to trade Forex. This activity helps to increase the level of volatility. The importance of currency is logical. If it’s morning in London, the Bank of England will be releasing the financial news, with UK companies getting orders to hedge their purchases of sterling futures from abroad.
It therefore makes sense for UK banks and funds to speculate in the market. British private traders are therefore the most active of the day, but their influence will be relatively insignificant. This is because of the small volume they produce and because private traders are less tied to the currency. The scenario will apply to other countries and currencies, so if you are chasing market volatility as part of your trading strategy, then the best daily times to trade forex would coincide with the biggest movers.
The most volatile time of the day for European currencies and currency pairs that include them would be the London session. In this case, we are mainly talking about EUR, GBP and CHF. Also, during the Asia-Pacific session, the currencies of countries geographically located in the Asia-Pacific region will be traded, such as JPY, AUD, NZD and to a lesser extent SGD and HKD. Finally, the USD, CAD and MXN saw increased volatility during the North American session.
Now, as mentioned above, due to overlapping trading sessions, often in addition to currency pairs consisting of currencies from different regions, the volatility spikes are slightly skewed.
Stock Exchange Trading Forex Finance Graphic Concept
London/New York would be the toughest overlap. This is not surprising given that it is the most traded EUR/USD pair and the third most traded GBP/USD pair. Tokyo/London is another big one, when most US movers are relatively inactive, giving way to FX crosses like EUR/JPY and GBP/JPY. Finally, since Tokyo is more than 16 hours from Los Angeles, this overlay shows the least trading activity.
Another thing to keep in mind is that most of the volume in the currency market comes from the forex spot market, which is also the market that is mostly traded by retailers. While the spot market is open 24/5, the futures market is tied to a physical exchange. More precisely, in the Chicago Mercantile Exchange and its various partners in the US and abroad (so-called introducing brokers). The importance of this fact is that it further reinforces that only all pairs can be traded in the futures market.
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