The optimal time to trade the forex (foreign exchange) market is when it's at its most active levels. That's when trading spreads (the differences between bid prices and ask prices) tend to narrow. In these situations, less money goes to the market makers facilitating currency trades. This leaves more money for the traders to pocket personally.
The 4 Major Forex Exchanges
The four major forex exchanges are located in London, New York, Sydney, and Tokyo. Forex traders need to commit their hours to memory, with particular attention paid to the hours when two exchanges overlap.
When more than one exchange is open at the same time, this increases trading volume, and adds volatility—the extent and rate at which equity or currency prices change. This volatility can benefit forex traders
This may seem paradoxical. After all, investors generally fear market volatility. In the forex game, however, greater volatility translates to greater payoff opportunities.
Worldwide Forex Markets Hours
The forex is fully electronic and open somewhere in the world between 5 p.m. Sunday and 5 p.m. Friday Eastern Standard Time (EST). Each exchange has unique trading hours weekdays from Monday through Friday. From the average trader's perspective, the four most important time windows are as follows. (All times are EST):
- London: 3 a.m. to 12 p.m. (noon)
- New York: 8 a.m. to 5 p.m.
- Sydney: 5 p.m. to 12 a.m. (midnight)
- Tokyo: 7 p.m. to 4 a.m.
While each exchange functions independently, they all trade the same currencies. So when two exchanges are open, the number of traders actively buying and selling a given currency greatly increases. The bids and asks in one forex market exchange immediately impact bids and asks on all other open exchanges. This reduces market spreads and increases volatility. This is certainly the case in the following windows:
- 8 a.m. to noon, with both New York and London exchanges open
- 7 p.m. to 2 a.m., with both Tokyo and Sydney exchanges open
- 3 a.m. to 4 a.m., with both Tokyo and London exchanges open
The New York exchange is especially important for foreign investors. Its trades involve the U.S. dollar, which is involved in 90% of all currency trades. Movements of the dollar can have a strong ripple effect around the world.
The usual best trading time is the 8 a.m. to noon overlap of New York and London exchanges. These two trading centers account for more than 50% of all forex trades. On the flip side, from 5 p.m. to 6 p.m., trading mostly happens in the Singapore and Sydney exchanges, where there is far less volume than during the London/New York window.
There can be exceptions, and the expected trading volume is based on the assumption that no major news come to light. Political or military crises that develop during otherwise slow trading hours could potentially spike volatility and trading volume.
Certain economic data that can move the market has a steady release schedule. It includes jobless figures, Consumer Price Index (CPI), trade deficits, and consumer confidence and consumer consumption. Knowing when this news is set for release can help time when to trade.
High-Volume Forex Trading Hours Can Be Risky
Forex traders should proceed with caution because currency trades often involve high leverage rates of 1000 to 1. While this ratio offers tantalizing profit opportunities, it comes with an investor's risk of losing an entire investment in a single trade.
A Citibank study found that just 30% of retail forex traders break even or better. Tellingly, 84% of those polled believe they can make money in the forex market. The chief takeaway is that new forex investors should open accounts with firms that offer demo platforms, which let them make mock forex trades and tally imaginary gains and losses. Once investors learn the ropes and become seasoned enough, then they can confidently begin making real trades.
Like many other investments, while there is money to be made, there is also plenty of opportunity to lose. So make it a point to educate yourself.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.