Forex Market Trading Hours.
Although the advent of connectivity platforms and the meteoric rise of decentralized blockchain-based assets have recently challenged the concept of the world’s reserve currency, so far, the U.S. dollar remains king. Of course, this dynamic does not mean that the rest of the global financial sector marches to an American cadence.
Instead, demand for the greenback awakens just as U.S. investment sessions close for the day. Enter the wild and often unpredictable world of foreign exchange and the underlying dynamism of forex market trading hours. Thanks to a distinctive profile of demand structures and geographical realities, forex session times essentially feature 24-hour trading.
This article discusses the core breakdown of this unique financial sector.
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Table of Contents [ Show ]
The Reason Behind Forex Session Times Four Major Forex Markets Most Important Forex Market Hours When is the Best Time to Trade Forex? Price Swings in the Forex Market Trade Forex Market Hours With These Top Forex Brokers Frequently Asked Questions.
The Reason Behind Forex Session Times.
As with anything in life, the primary reason for the on-all-the-time forex market trading hours is demand. If no economic or financial imperative existed for 24-hour trading, the concept would likely fade out permanently. For instance, operating a financial exchange is not free. Even decentralized platforms such as cryptocurrencies consume significant amounts of energy.
Demand also explains why certain markets — particularly domestic stocks — don’t feature 24-hour trading. Unlike forex market hours, the New York Stock Exchange operates on a specific schedule — open at 9:30 a.m. ET, close at 4:00 p.m. ET. While some of the biggest stocks in the world call the U.S. market home, volume for such securities overall fades considerably during unorthodox hours.
Since the majority of Americans work standard hours, it frankly doesn’t make sense for equities to feature the same forex market trading hours.
This last point segues into another reason why currency exchange hours operate around the clock, almost every day — geographical realities. As soon as bankers and other bigwigs in New York clock out, the suits in Japan are clocking in. Unlike domestic stocks, forex market hours are not tied to one specific participant base. Like a highly tuned sports car shifting from one gear to another, the focus of the forex enterprise merely transitions to a different locale.
In this manner, a 24-hour currency exchange may be ideal for Americans that don’t live on the east coast. Since many west-coast worker bees might not return to their hive until around 9 p.m. ET or so, they would be locked out of equities trading in the open market. However, under the context of forex market hours, the fun could just be getting started.
Finally, forex market trading hours represent a geopolitical consequence. Back in August 1971, President Richard Nixon announced the suspension of the gold standard or the convertibility of the dollar into gold. Per the International Monetary Fund, this action effectively removed the Bretton Woods system of fixed exchange rates.
The IMF website explains that “since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union.”
Nations must find some relative standard to gauge their currencies’ valuation. Since this search for monetary meaning doesn’t stop at one country’s time zone, forex market hours are constantly rolling.
Four Major Forex Markets.
Although each nation tied to the global financial sector operates under its distinct time zone, the bulk of forex market trading occurs in these four regions (listed in order of opening hours based on Greenwich Mean Time):
Sydney: Taken as a whole, forex market trading hours begin in Sydney at 10 p.m. GMT. Along with the Tokyo market below, traders consider Sydney’s opening bell as the beginning of the Asian session. Combined with other Asian markets such as Hong Kong and Singapore, the Asian session contributes approximately 21% of all forex transactions. Tokyo: Representing the financial hub undergirding the world’s third-largest economy, the Tokyo market represents a key zone within forex market trading hours. Japan’s yen currency is the most traded currency in the wider Asian session, covering 16.5% of all forex transactions. London: Next to open is the London market, basically the crown jewel of forex market hours. Commanding huge trading volume, over 32% of forex transactions occur in the capital city of England. New York: Last but certainly not least, New York represents the caboose of forex market hours. Approximately 19% of all forex transactions occur in the Big Apple, with 85% of trades involving the dollar.
Interestingly, each market zone also features a distinctive trading personality. For instance, the Asian session at times features low liquidity. However, the price action can start moving as fundamental catalysts from Australia, New Zealand and Japan materialize.
During the London session, volatility can be a bear to wrestle with until the middle of the period. That’s because most traders take some time off for lunch, potentially enabling retail traders to catch their breath.
Closer to home, the New York session tends to feature high liquidity in the morning hours, when it overlaps with the twilight of the London session. However, relatively little movement occurs toward the afternoon hours, particularly near Friday’s closing bell.
Most Important Forex Market Hours.
While forex session times encompass the full breadth of the 24-hour clock, it doesn’t trade every single day. Saturday provides a rare respite while the market picks back up again on Sunday. Below is the schedule for the main forex market trading hours.
Sydney: Opens at 10 p.m. GMT, closes at 6 a.m. GMT Tokyo: Opens at 12 a.m. GMT, closes at 8 a.m. GMT London: Opens at 8 a.m. GMT, closes at 4 p.m. GMT New York: Opens at 1 p.m. GMT, closes at 9 p.m. GMT.
Unlike a music festival where one act will follow another following the earlier group’s conclusion, forex session times feature overlaps with other regions. Primarily, professional traders prefer participating during these overlapping hours because of the increased volatility. Without market velocity, traders find it difficult to extract net returns for their speculative activities. As well, higher liquidity tends to yield narrower bid-ask spreads, thus making it easier for traders to generate net profits.
Sydney and Tokyo: The overlap occurs quickly as after two hours of trading in the Sydney session, Tokyo opens its doors. Tokyo and London: While not technically an overlap (Tokyo closes while London opens at 8 a.m. GMT), British traders can accrue significant data from both the Tokyo and Sydney forex session times, thus providing potential preparatory research. London and New York: London overlaps with New York between 1 p.m. GMT and 4 p.m. GMT. Therefore, the first three hours in New York tend to be the wildest in terms of volatility.
Finally, keep in mind that according to the Bank for International Settlements (BIS) — an international organization that fosters international monetary and financial cooperation — forex market trading features a daily transaction amount of $6.6 trillion. Thus, professional traders attempt to participate at a time when the bulk of that money swaps hands.
When is the Best Time to Trade Forex?
From an objective standpoint, the best time to trade forex is between 8 a.m. ET to 12 p.m. ET. Within this period is where the London and U.S. markets overlap, effectively a marriage between the first and second biggest individual forex markets.
Coming in second place would be the period when the Sydney and Tokyo markets overlap. While not as volatile as the trading that occurs during the London/U.S. overlap, the former regions provide ample opportunities for professional and seasoned traders.
Still, the matter of “best time” could be a philosophical one. Practically speaking, the best currency exchange hours are the time slots when you can fully focus on the task at hand. Remember, unlike placing long-term orders on blue-chip stocks, forex market hours can be brutal because plenty of action is condensed within a short period of time.
Anything less than full and absolute commitment is likely a recipe for disaster.
Price Swings in the Forex Market.
As the term implies, price swings represent substantial shifts in currency valuations. A practically infinite number of catalysts can impose shock changes to the global monetary system, including economic recessions, political uprisings and to use current events, military invasions.
While many investors shy away from such volatile events, professional traders gravitate toward them. Essentially, more underlying currency movements translate into more opportunities for speculation. If currency pairs continued to stay fixed, there would be no incentive to trade on their trajectory.
On the other hand, central banks don’t share the same motivations as forex speculators. To stabilize their currencies, central bankers will allow their national currency to be traded in the open market, thus maintaining a relative benchmark of value compared to other international currencies.
As well, companies that operate in multiple countries deploy currency swaps to protect against the volatility and vagaries of forex market trading. Currency swaps give holders the right but not the obligation to buy a set amount of foreign currency for a set price in another currency at a date in the future.
Trade Forex Market Hours With These Top Forex Brokers.
While forex market hours provide incredible flexibility for participants, this arena isn’t for everyone. Nevertheless, if you understand the complexities and risks associated with this sector, consider some of the best forex brokers.