What are the Best Forex Market
Hours & Trading Sessions?

What are the Best Forex Market
Hours & Trading Sessions?

The forex market is a wide network of sellers and buyers of currencies at agreed prices. Market participants include companies, central banks and individuals who convert one currency into another. If you have ever travelled abroad or purchased something online from a different country, you have likely made a forex transaction.

While currencies are exchanged for practical purposes, like business or travel, the vast majority of currency exchange takes place with the motive of earning a profit. This is what has made the forex market the biggest and most liquid financial market in the world. In fact, the daily turnover in the forex market reached a whopping $6.6 trillion in 2019.

Many people begin their trading journey with forex. More than 70% of forex traders had no prior experience in trading other instruments when they entered the currency market. For beginners and seasoned traders, MetaTrader 4 continues to be the most widely used platform for forex trading. This is not surprising as MT4 was designed specifically for forex.

Most forex brokers provide a demo account version of the trading platform so that new traders can learn about forex. This allows inexperienced traders to learn about concepts such as contracts for difference (CFDs), high volatility and technical analysis. The next step is to develop a trading style that will help avoid high risk situations prior to opening a live trading account.

The forex market is open 24/5 - 24 hours a day 5 days a week. Forex traders need to be aware of forex trading hours and where markets overlap. There are particular times that are considered major trading sessions in order to plan their own forex trading sessions.

Which are the
Most Actively
Traded Currencies?

To determine the best time to trade forex, traders need to know the most actively traded currencies. These are called the Majors. More than 85% of forex market transactions take place in these eight major currencies.

The US Dollar

Code: USD | Symbol: $

Also called: Greenback

Towards the end of World War II, the Bretton Woods Agreement pegged the US dollar to gold and fixed the value of the other currencies to the US dollar. Although this system collapsed, the supremacy of the US dollar has remained intact. This is understandable, since it is the official currency of the world’s largest economy. The greenback is influenced by world trade, America’s economic data, and the Federal Reserve’s (the Fed) monetary policy and interest rates. The US dollar finds its way into the portfolios of traders and investors due to its safe-haven status. It is recognised as the benchmark currency in the foreign exchange market.

The Euro

Code: EUR | Symbol: €

Although the euro’s origin dates to the Maastricht Treaty of 1991, it became the official currency of 12 of the 27 member states of the European Union in 2002 and was later adopted by 19 nations. The euro is influenced by the monetary policy decisions of the European Central Bank (ECB), headquartered in Frankfurt, Germany. The euro tends to remain stable, meaning that there is low volatility in the most popular currency pairs that include EUR. Typically, the euro’s price swings remain below 80 pips.

The Yen

Code: JPY | Symbol: ¥

This is the official currency of Japan and is influenced by the Bank of Japan’s monetary policy, money market operations, and data releases. The Japanese yen tends to be erratic and is notorious for being difficult to predict. Despite this, the yen is an actively exchanged currency, as it offers attractive trading opportunities and has a safe-haven appeal. Given Japan’s low-interest rate, traders look out for opportunities trading the yen with higher-yielding currencies, like the Australian dollar and the British pound.

The Pound

Code: GBP | Symbol: £

Also called: Sterling

With the UK being the world’s fifth-largest economy and London as a global hub for trading and investing, the pound is a popularly traded currency. The pound is influenced by monetary decisions taken by the Bank of England, which announces policy eight times a year. The British pound is much more volatile than the euro and can move in wide price swings of 150 pips or more throughout the trading day.

The Swiss Franc

Code: CHF | Symbol: Fr.

As the name suggests, this is the official currency of Switzerland. For decades, this currency has enjoyed a superior safe-haven status among traders and investors, given the Swiss National Bank’s decision to follow a zero-inflation policy and the country's political neutrality. Due to Switzerland’s low interest rate, the Swiss franc is often traded against high-yielding currencies.

The Canadian Dollar

Code: CAD | Symbol: C$

Also called: Loonie

Given Canada’s economic health, its currency tends to remain strong and stable in forex trading. The currency is impacted by the policy decisions of the Bank of Canada, which follows an inflation target of 2% to determine monetary policy and tends to maintain a hawkish stance. The loonie is impacted by news related to crude oil, which is Canada’s largest export. The currency is also impacted by price fluctuations in the global commodity markets as Canada is a producer of various minerals, grains and wood products. Since the US is Canada’s largest trading partner, news related to the US economy has a meaningful impact on the loonie.

Australian Dollar

Code: AUD | Symbol: A$

Also called: Aussie

This currency is influenced by the Reserve Bank of Australia’s monetary policy and decisions to regulate money supply. Since Australia is among the world's largest exporters of iron-ore and coal, the Aussie is influenced by price movements in the commodity markets. China is by far Australia's largest trading partner, which is why traders keep an eye on news related to the Chinese economy.

New Zealand Dollar

Code: NZD | Symbol: NZ$

Also called: Kiwi

This currency is impacted by the monetary policy decisions of the Reserve Bank of New Zealand. The New Zealand dollar is most actively traded with the US dollar. However, being a high-yielding currency, the kiwi is popular for carry trade, especially against the Japanese yen and the Swiss franc.

Why Trade the
Major Currency Pairs?

There are 7 most actively traded currency pairs.

Among these the top 4 are:

1. USD/JPY – US Dollar vs Japanese Yen

2. EUR/USD – Euro vs US Dollar

3. GBP/USD – British Pound vs US Dollar

4. USD/CHF – US Dollar vs Swiss Franc

The other 3 are:

1. USD/CAD – US Dollar vs Canadian Dollar

2. AUD/USD – Australian Dollar vs US Dollar

3. NZD/USD – New Zealand Dollar vs US Dollar

These are the major currency pairs as they have the highest trading volume in the forex market. High volume means more liquidity which translates to tighter spreads and lower slippage. This is why it is a good idea to begin your trading journey with these currency pairs.

At the other end of the spectrum are exotic currency pairs, which are major currencies traded against currencies of emerging economies or thinly traded currencies.

The 7 most common exotic pairs are:

1. EUR/TRY – Euro vs Turkish Lira

2. USD/TRY – US Dollar vs Turkish Lira

3. GBP/ZAR – British pound vs South African Rand

4. USD/MXN – US Dollar vs Mexican Peso

5. EUR/HUF - Euro vs Hungarian Forint

6. AUD/MXN - Australian Dollar vs Mexican Peso

7. JPY/NOK - Japanese Yen vs Norwegian Krone

What are the
Advantages of
Trading Forex?

Among the several benefits that attract traders to the forex market are:

Large & Global Market
The forex market is by far the largest financial market with a massive daily turnover of more than $6 trillion. That’s $250 billion exchanged every hour or $70 million every second!
Why does size matter? Firstly, the high level of trading activity indicates the popularity of the forex market. More importantly, it suggests high liquidity, making it easier to buy or sell financial instruments here. Positions can be opened and closed efficiently, at the desired prices, and trades can be executed extremely fast. Given its high liquidity and global nature, the forex market offers the best day trading experience.

No Bear Market
Whether the market is rising or falling, there are trading opportunities in forex. This is because when one currency falls, it does so versus some other currency. This means the other currency rises. With the right trading strategies, you can find opportunities whether a currency pair is rising or falling. For instance, you can go long on the euro if you expect the EUD/USD to rise (euro to appreciate against the US dollar) and go long on the US dollar if you expect the pair to fall (US dollar to appreciate against the euro).

Absence of Whales
In market terminology, whales are investors with deep pockets, who can single-handedly influence the price of a security by large buying or selling. Although this typically happens for a brief period, it can cause other investors to follow suit and cause instability in the market. Given the sheer size of the forex market, no one large trader or institutional investor can influence prices. Even the largest investor is only a small fish in the forex market. Exchange rates are influenced by the relevant economies and the monetary policies of the central banks of the respective countries. The high liquidity of the forex market creates a more level playing field for all traders.

Low Costs
Typically, there are no commissions charged. There are no clearing fees, exchange fees or government fees. The only transaction cost that a trader needs to be aware of is the spread, or the difference between the bid and ask prices quoted by the broker. When choosing the broker always check for tight spreads in order to contain these transaction costs. If you are trading with a regulated and reputed broker, chances are that they offer high liquidity and tight spreads.

Ideal for Beginners and Seasoned Traders Alike
The forex market is extremely accessible, with low barriers to entry. Getting started is easy and does not require too high an investment. Many novice traders find it easier to understand how the forex market works than other asset classes like commodities or even stocks. Of course, the learning continues through the life of a trader. However, with capital as low as AUD 100, one can enter the exciting world of forex trading. The large number of opportunities in forex and leverage as high as 30:1 provided by some brokers make this market attractive for seasoned traders.

No Central Exchange or Regulator
The forex market is decentralized, meaning that it is not controlled by a single regulator or exchange. There are no middlemen. You trade directly with another trader. The forex broker only facilitates the transaction. The absence of central exchanges and regulators for not only keeps trading costs low, but also ensures there are no sudden hiccups in the market or sudden large price swings. Although there is no central regulator for the global forex market, this does not mean it is completely unregulated. There are leading organisations that are responsible for regulations in their respective countries. In fact, before you begin forex trading, ensure that the broker is regulated by one of the leading regulatory authorities, like the ASIC (Australian Securities and Investments Commission), the FCA (the UK’s Financial Conduct Authority) or the CySEC (Cyprus Securities and Exchange Commission).

What are the
Best Hours for
Trading Forex?

The forex market is open all day, which means traders can trade at their convenience. This is particularly beneficial for day traders and those wishing to take positions for short durations as well as for traders with longer horizons.

The Forex market opens at 10pm GMT on Sunday, is operational through the week, and closes at 10pm GMT on Friday. Traders around the world open and close positions through the day in different currencies. Given the different time zones, traders are active in the forex market through the day and at night.

Why Identify the Best Trading Hours?

Why is it important to know the best hours for trading forex? While the global forex market is open all day, there are periods when it is more active. This is also the time when the market is most volatile, given the higher volume of trade. While the higher liquidity at such times ensures faster order execution, the higher volatility offers traders many more attractive trading opportunities.

Some traders prefer placing trades when the market is not as active. In other words, they prefer when the market is more stable. For instance, if a trader wishes to hold positions in the Australian dollar at a relatively stable time, they may go long on the Aussie during the US business hours. At this time, it is night in Australia and there is unlikely to be any market-moving news during this period. In a stable market, the price movements are lower, which limits the profit margins on each open position. So, people trade much higher volumes during these hours, so that winning traders bring in decent profits.

What are the
Operating Hours for
the Forex Market?

The forex market is said to be open 24 hours a day because traders from different parts of the world are active at different
times. While the ideal time to trade forex is during the day in your local time, it is important to know about the 4 main time
zones of the forex market. This gives you an idea of the liquidity and volatility to expect.

The 4 main time zones for the forex market are:

New York, USA

New York Session Trading Hours: 8am to 5pm ET
(or 1pm to 10pm GMT).

During this time, the markets are very active, since the United States dollar (USD) is involved in almost 90% of foreign exchange transactions. Traders who are active during the New York session keep an eye on US economic data releases, announcements made by the Federal Reserve and even the overall performance of the US stock market, as all these factors can have a meaningful impact on the US dollar.

Tokyo, Japan

Tokyo Session Trading Hours: 7pm to 4am ET (or 11pm to 8am GMT)

This is the first forex market opening for Asian traders and comprises of the lion’s share of Asian trading. However, many Asian traders, especially from China and Russia, continue to trade long after the Tokyo market closes. The USD/JPY currency pair sees the maximum action during this time, although there is also heavy trading in other currency pairs like GBP/CHF and GBP/JPY.

London, UK

London Session Trading Hours: 3am to 12pm ET
(or 7am to 4pm GMT).

London dominates the global currency markets, accounting for almost 50% of global trading. This is not only because this time zone has the maximum overlap with Asia and the Americas, but also because almost all multinational banks have their branches in London. These behemoths trade during the London time zone, taking the volumes significantly higher than in the Asian or American trading sessions.

Sydney, Australia

Sydney Session Trading Hours 5pm to 2am Eastern Standard Time
(EST) (or 10pm to 7am GMT)

Although this is the most stable period in the 4 main time zones, this is when traders from Australia, New Zealand and some parts of Asia are most active. Inexperienced traders should be made aware of daylights savings and the impact it has on forex trading. This is as daylight savings is not utilised by all countries and starts/ends on various days for those to use it.

Despite being open 24 hours a day, there is a marked decline in trading activity between 7pm to 22pm GMT, when Americans are wrapping up for the day, and Australia and New Zealand are just about to start their day.

What are the Best
Trading Sessions for
the Forex Market?

Although there are 4 time zones, there are essentially three main trading session or trading periods for the forex market. It should be noted that markets overlap, hence why forex is recognised as being accessible 24 hours a day.

The three main trading sessions are:

The Asian Session

Forex trading begins with this session, as Asian traders are the first to wake up and start trading. This session begins with the opening of the Tokyo market. Trading is generally subdued before the Tokyo market opens, although traders in Australian and New Zealand have already started trading. Both liquidity and volatility pick up as this session progresses. However, since the markets and time zones are quite scattered, this is not the most active phase of the forex market. Other significant currencies in this region include the Hong Kong Dollar (HKD) and Singapore Dollar (SGD).

The European Session

This is really when all the action begins. After all, London is the hub of forex trading. Moreover, the time zones are dense in this continent and the region is home to several major financial markets. Traders from Africa also begin their trading day during the European session. Moreover, this session overlaps with the Asian session and the North American session. Due to all these factors, this is the most liquid and volatile session of the global forex market.

The North American Session

This session begins several hours after the Asian session is officially closed and Asian markets have recorded their day’s settlement figures. Although the Asian session is over, the European session is only midway when the North American session begins. This is when traders in the US, Canada and Mexico are the most active. This session also witnesses high liquidity and volatility, albeit not as much as the European session. However, trading activities begin to fade and there is a lull in the market, as there is a considerable time lag between the closing of the North American session and the opening of the Asian session the next day.

Some traders prefer to trade during periods of overlap between sessions, as this tends to present the most trading opportunities. The maximum overlap happens between the European and North American session. In fact, almost 70% of all forex transactions are placed during this period of overlap. This is also when the most popular currency pairs – EUR/USD and GBP/USD - witness the maximum action.

The Bottom Line

Traders should choose a dedicated time of the day to trade that should be aligned with their risk appetite and preference for liquidity. The best time to trade also depends on the currency you wish to trade. It is better to choose one trading session and focus on that rather than trying to trade throughout the day. Similarly, focusing on common currency pairs such as the USD/GBP or EUR/JPY is a good way to start trading. This will help you understand volatility levels during a particular time frame and the factors that impact it such as specific economic data and news releases. Lastly, you will need to find a reputable broker with a trading platform that provides real-time pricing and fast execution.

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Source - database | Page ID - 959

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