When is the Best Time to Trade?

On the whole, the foreign exchange is an extensive market that holds a lot of profitable potential. However, trading in this market is not as simple as it appears. You need a strong trading strategy to become successful in this market. Furthermore, there are many risk factors that should be considered. When it comes to foreign exchange trading there is a myriad of factors that need to be considered before making any trading decisions. Determining the right time to trade is among the vital factors that cannot be overlooked. There are four trading sessions: New York, London, Tokyo, and Singapore. You must be aware of the peaks as well as trade timings of these markets to make profitable trading decisions.

The Importance of Understanding Forex Market Hours

It is important for Forex traders to have a certain volume in the market to perform trading. A lower market volume means less liquidity. The optimum time to trade in the Forex market is when market volume and liquidity is at its most active and the spreads are at their lowest.

Trading in a market with no liquidity will not provide you with any ROI. Moreover, it is crucial to focus on the popular currency of the particular trading session. For instance, if you are trading in a European session, then it is wiser to focus on currency pairs that include GBPUSD, EURUSD, and USDCHF.

While the foreign exchange market is an around the clock market, there are specific hours and overlaps at which the best liquidity can be determined.

When is the Best Time to Trade?

There are different aspects to consider when answering this question. In the following, we have highlighted specific ways that can help you determine the right trading time.

Identifying the Most Active Hours on the Forex Market

As mentioned previously, not all trading hours in the foreign exchange market perform equally with regards to activity, liquidity, and volatility. This is why it is important to determine active hours prior to trading. When traders trade in a market that has lower liquidity, it can result in greater transaction costs and slippage. Foreign exchange marketing is traded during various sessions that are based on prominent financial centres including London, New York, Paris, Moscow, Frankfurt, Sydney, and Singapore. It is important to determine the opening and closing time of each market when deciding on the best time to trade. The following are the opening and closing times of the major foreign exchange market:

Summer Times

Winter Timings

The London Forex market sessions are the most active of all the markets. This is because the majority of internationally-reckoned banks are located there. As you can see, New York and London sessions tend to overlap for a couple of hours every day; these overlaps increase the liquidity of the currency pairs manifold, thereby lowering the transaction costs and increasing price movements. The New York–London overlap hours that start at 1:00 pm GMT and end at 4:00 pm GMT is one of the best times for trading.

Not only do these trading hours have high liquidity; they also possess the highest volatility. This is because most of the market reports are launched during these overlapping hours.

Ideal Days for Foreign Exchange Trading

Along with ideal trading hours, traders must also identify viable trading days. This is essential for day traders as they typically close their trade by the evening or leave it open for a couple of days, making it important to perform on the ideal trading days. The foreign exchange market remains open from Monday to Friday. The opening and closing days of the week tend to witness slow movement but can also provide significant movement. This can happen in situations where some break during the weekend, impacting the standard market movement on the opening day. Furthermore, a short-term trader often closes their trades on a Friday, hence increasing the marketing movement on the closing day.

The days of market release are also prominent when deciding on the best days to trade. Typically, market releases do not occur on Mondays and Fridays.

Identifying the Right Currency Pairs for Trading

Identifying the right currencies to trade is another imperative factor that optimises the effectiveness of your trading session. This determination of currency pairs is especially important for short-term traders who tend to close their trends within a couple of days. Currencies such as the New Zealand dollar and the Australian dollar are less traded compared to major currencies including the US dollar, British Pound, and Euro.

The value of the currencies also depends on the market session that you are dealing with at that moment. For instance, if you are trading in the Sydney session, the currency value of AUD pairs are likely to go higher than they would during other sessions. However, when you are dealing in the New York–London overlap session, you can easily trade in any currency pair.

Identifying the right time to trade in the foreign exchange market is an important factor when establishing your trading strategy. Currencies, location, volatility, and trading nature are some of the vital factors that impact the ideal trading hours in the Forex market. Even when you have identified the ideal time to trade, it is important to be cautious as it does not necessarily guarantee profitable results.