Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
Forex Market Hours Explained: The Best Hours To Trade Forex
BY TIO Staff|January 25, 2022
The forex market is a 24 hour a day, five-day a week market. Depending on your time zone, the forex market can run from the early evening hours on Sunday through to the early hours of Saturday morning.
There are three broad trading “sessions”, which span across all time zones and make up the hours during which all forex trading volume takes place. These are the Asia / Pacific, London / Europe and USA / North American sessions.
Why should we be aware of forex market hours?
Although the forex market is active 24 hours a day, 5 days a week, understanding the market hours is one of the most crucial aspects of trading to nail down if you want to enter positions at the right time and avoid potentially costly mistakes.
By knowing which sessions are active, which are closed, and when they overlap, you can time your trades to get the best possible spreads and participate during the most volatile times.
What time does trading start?
Unlike stocks, there is no official opening time to the forex market because it is not a centralised, controlled market. Any currency pair can be traded in any market in the world. Technically, the first financial market to open is in New Zealand, so Monday morning in Wellington marks the start of the financial trading week.
A regular 9am Monday morning start in New Zealand equates to a noon start on Sunday in California, an 8pm Sunday start in the UK, and a 4am Monday start in Hong Kong. In theory, all currencies can be traded starting from this time onwards. In reality, when only New Zealand is open, liquidity will be limited and there may be little movement in most currency pairs until more markets across the world open for business.
When fewer markets are open, spreads tend to be significantly higher because New Zealand is the only market offering prices. When Australia and other countries in Asia join the session during the following hours, liquidity improves and the spreads begin to narrow towards more normal levels.
The Asian session open is the first time the market is active again after the close of Friday’s session in the United States and Canada. This represents the first chance that major forex players have to react to the weekend’s developments and enter their first positions of the week.
The Asian trading session
This is the first trading session of the day; it includes the market hours of New Zealand, Australia, Japan, Hong Kong and Singapore, and runs from 11pm to 8am GMT.
Data releases for this region are mostly scheduled for the early hours of the session. Japanese data for example is typically released around 9 am local time, which would equate to midnight in London and 1 am in continental Europe. News released during these hours can often set the overall tone and direction of the session, depending on how important the releases are and what they indicate.
Much of the trading activity during the Asian session is focused on the Australian Dollar and the Japanese yen. This is due to the size of these economies and their importance to overall market stability in the region. Currency pairs such as the AUD/USD, EUR/USD, USD/JPY, EUR/JPY and AUD/JPY tend to experience more liquidity and movement than those of other pairs during the hours when only this session is active. Australian and Japanese banks, who are the main traders of these pairs, are also most active during this session.
For retail traders, overall market liquidity is sufficient to enter positions and trade. Having said that, for currency pairs that fall entirely out of this region, at this time, such as GBP/USD or USD/CAD, volatility may be very low. Without news and out of business hours trading in the US or Canada, traders may there is little to be gained in entering a USD/CAD position, for example.
Similarly, euro-based pairs are unlikely to see much movement until the opening of the London and European session. So pairs such as EUR/GBP and EUR/USD are not ideal to trade until markets in Europe and London begin to open.
The London/European trading session
European financial hubs begin to open up during the tail end of the Asian session. The start of trading in London is when the forex market begins to find its groove. It’s estimated that the UK capital alone is responsible for 43% of all global trading volume.
This session overlaps with the end of the Asian session and half of the US trading session. Liquidity is usually at its peak towards the end of this session, particularly when it overlaps with the US session.
Countries such as the UK, Germany, France and Switzerland frequently release economic data during the early hours of this session. As a result, much of the volatility and liquidity during these hours is focused on European currencies such as the EUR, GBP and CHF.
Within an hour or two from the start of the session (depending on whether daylight savings time is in effect in certain parts of the world), all Asian markets will have closed. The US and North America session begins at 2:30pm in the UK and signals the most important session overlap of the trading day.
The US trading session
On its own, the North American trading session accounts for around 22 per cent of daily trading volume worldwide. The most meaningful part of the North American session is its crossover with the London and European session. Trading volumes during this period are much more significant and we can normally expect the biggest directional movements to occur when the sessions overlap.
The early part of the morning in the eastern United States is when most economic data is released, between 8:30am and 10am New York time. Other important releases, such as the minutes of an FOMC meeting, are released during the afternoon in the US, usually at 2pm Eastern and often injecting extra volatility into the afternoon US session.
Later in the US session, the London and European markets begin to come to a close. This period sometimes instigates a new flurry of activity. If enough traders decide to take profits from their trades, this period could see a reversal of price movements that had occurred throughout the earlier part of the day.
At other times, the price could see a further extension of the day’s directional movement as more traders try to jump on the bandwagon before US markets close. You should pay attention to all trading sessions to see if you can identify consistent patterns in price behaviour.
Can all sessions be closed at once?
The only time that major financial centres around the world are closed at the same time is on the weekend and on rare occasions when public holidays in different regions fall on the same day. New Year’s Day is the most notable occurrence and many countries also observe a holiday on May 1st.
The forex market is usually always open during the business week but volumes may be light and price action slow whenever a major market is closed.
How else are trading sessions linked?
In terms of forex volume, London dwarfs every other financial centre in the world, including New York. However, this doesn’t mean that there aren’t plenty of opportunities to trade during the US and Asian sessions. While there’s no hard and fast rule with anything in forex, generally traders might expect the Asian session to be the slowest. When the European and US sessions come online and become active, it is far more likely to expect greater volatility and price movement.
Watch out for the weekend gap
On most Sundays, trading will continue more or less from where the price left off at Friday’s close. However, depending on the circumstances and the weekend’s developments, the price might gap on Sunday’s open compared to where they closed on Friday. This is referred to as a weekend gap and something that traders need to factor in when holding a position over the weekend. Traders won’t have a chance to trade in between the Friday close and Sunday open prices.
There’s absolutely no way of telling for certain which level prices will open at, or any way of telling how far prices will gap from Friday to Sunday. Any number of events has the potential to move price over the weekend, such as unexpected news and political events. All a trader can do is be aware of the risks, and be aware that if they hold the position over a weekend, prices can potentially gap one way or another.
Usually, most of the news takes place during the week. Events that tend to take place over the weekend can include G20 meetings or certain elections in countries that traditionally hold their ballots over a weekend. During times of sustained crisis, such as during the first year of the pandemic or the Eurozone debt crises, lots of last-minute decisions can be made that can affect the market over the weekend, heavily influencing the price at which currencies open on Sunday.
Best times to trade forex?
The best time to trade really depends on which currency you’re trading and how much emphasis you place on spreads and liquidity. Often, the best trading environment occurs when the market is most liquid. As such, the tightest spreads on most major pairs can be found during the London/US sessions overlap.
However, that is not the only consideration you should make as a trader. The early US and London sessions are also congested hours for data releases, which could cause spreads to widen significantly and could increase volatility to a level beyond your comfort. If you’re trading around data releases, don’t always count on the low spreads and predictable ranges that you think you’re going to get.
Always check the economic calendar. Traders may seek to either enter positions during volatile periods or during more quiet periods. Both are viable options provided you do so on purpose and with purpose.
Also, think about which market is best suited to the pair you want to trade. Generally speaking, a currency will have the most liquidity when its related market is active. The USD/JPY for example will see the most action during the Asian or American sessions, while the EUR/JPY may be more active during the first hour of the European session when it overlaps with the Asian session. Pairs such as the EUR/GBP, for example, generally aren’t expected to have any large movements during the exclusive hours of the Asian session.
Take the totality of your objectives into consideration. There is no perfect time to trade, only better or worse times depending on what you’re trading that day.
Try trading the different market sessions risk-free by opening a demo account with TIOmarkets. You can practice with virtual funds during each of the trading sessions without risking real funds.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
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