What are the Hours to Trade Forex ?
One of the biggest allures of the forex market is the fact that you can make money round the clock. In fact, many people believe that the market is open 24/7 to traders. Is this the reality? This comprehensive guide to forex hours separates the facts from fiction.
The Standard Forex Trading Hours
There are four major forex trading hours or sessions:
- The Sydney Session (opens 10pm GMT and closes 7am GMT)
- The Tokyo Session (opens 11pm GMT and closes 8am GMT)
- The London Session (opens 7am GMT and closes 4pm GMT)
- The New York Session (opens 12 pm GMT and closes 9pm GMT)
During the winter, between October and April, the open and close times for the Sydney session go back by an hour. The open and close times for the London and New York sessions go backwards by an hour. The Tokyo session remains unchanged.
Looking at the sessions, you can see that there are periods where two different sessions overlap. These are the times when the markets are at the most volatile as there are more participants in the market. Since New York and London are the two biggest trading centres currently in the world, it is no surprise that historic data show that the market moves the most between 12PM and 6PM GMT. Regardless of the Daylight Savings adjustments, this six hour period is the peak of fundamental and technical related activities in the market. The Tokyo and Sydney sessions are regarded as one window in forex circles and collectively known as the Asian session. This is because the open and close times are near identical.
Is The Market Open Round the Clock ?
Looking at the analysis above, it is clear to see that the market is open round the clock as attention shifts from one session to another. However, there is a catch. Most retail traders are only able to get into the market from 10-11PM GMT on Sundays and are locked out of the market after 10-11pm GMT on Fridays. So it is important to keep this in mind. The forex market is only open round the clock, five days a week. Please note that the market will continue to move even during the weekend. The fact is that retail traders are locked out of such moves. This means that if you are unable to close a position before the close of trading for any week, you may be greeted by the pleasant surprise of unexpected profits or the unpleasant surprise of unexpected losses if a major economic event (think elections) happened over the weekend.
Analysing the Asian Session (Tokyo and Sydney)
Tokyo is the financial capital of Asia and the third largest forex trading centre in the world. This makes sense when you consider the fact that 16.5% of all forex transactions involve the Yen. The forex transactions that happen during the Asian session account for 21% of all forex transactions.
Important things to know about the Asian Session:
- Trading is not limited to people in Japan alone as transactions can involve Hong Kong, Singapore, Sydney, and New Zealand.
- The main movers of the market at this time are commercial companies and the central banks.
- Since the top two financial centres of the world are asleep during this window, liquidity can be very thin during this period. This means that trades entered may not move beyond a few points for hours.
- Pairs that have Asia-Pacific currencies as counter or base currencies like EURNZD, AUDJPY and more, will have more movement than pairs that have base and counter currencies in Europe or the US alone such as GBPUSD or USDCHF.
- Tight ranges are often formed during the Asian session, giving many traders the opportunity to take advantage of range trading during the session, or to wait for breakouts at the end of the sessions or later in the day.
- People trading the Asian session do not miss the open hours of the session between 10pm GMT and 12am GMT. This is the period when economic data from the Asia pacific region are released leading to market movements.
- When big moves happen in the Asian session, other sessions may see the market in correction against the previous move. Traders often look at the Asian session for direction for the rest of the day.
- The pairs to trade during this session include any pairs that have Japanese Yen, Australian Dollar and New Zealand Dollar as a part.
Analysing the London Session
As the Asian market winds down, the European market is about to begin. The continent of Europe is a powerhouse in the financial sector but London dictates the pace. London’s location means it is regarded as the centre of trading generally. It is regarded as the forex capital of the world and around 30% of all transactions in the forex market take place at this time.
Important things to know about the London Session:
- The fact that London session overlaps other major trading sessions means that liquidity is often high at this time. This translates to lower spreads and commissions on most major pairs.
- The high volatility of this session makes it a favourite for day traders.
- Trends for the day are set with the start of the London session and they remain until the start of the New York session.
- The volatility tails off during the middle of the session as traders get ready for the New York session.
- Trends can also be reverse during this session as soon as traders begin to lock in profits.
- The best pairs to trade at this time are generally the major pairs including USDCHF, USDJPY, GBPUSD, and EURUSD. However, the volatility in this session spreads across every single pair that has an European flavour, including wild movers like the GBPJPY and EURNZD.
- Economic data from the region begin to filter in as early as 8am GMT.
Analysing the New York Session
Also known as the U.S session, the New York session is the second most important for forex traders.
Important things to know about the London Session:
- The highest liquidity is seen in the early parts of the session starting from 12PM GMT to 6PM GMT. This is because the session overlaps the European session.
- A plethora of economic data is released around the start of the session. The releases are why the session is highly volatile. Over 80% of all forex trades are related to the US Dollar. It is easy to see why any releases move the markets so much.
- Liquidity dies off as soon as the European markets are close.
- Fridays are important during this session because apart from the first Friday of the month when U.S job numbers are reported, traders often close their positions ahead of the weekend.
- Traders with trading systems that are meant for quieter sessions tend to stay away from the market during this session.
- The high liquidity that is common place during this session means you can trade any pairs. If you are wary about high spreads, however, the major pairs should be your best bet.
So When Should You Trade? (Time and Days)
The decision on when to trade should be made based on your trading persona and trading strategy. We will look at this from the angle of a trader (Trader A) with a daytrading strategy (opening and closing trades the same day) and another trader (Trader B) with a pending order based trading strategy where positions are held for weeks at a time.
For Trader A, the best time to trade would be the London Session. Remember, the London session starts by overlapping the tail end of the Asian session, with the second half of the session overlapping the busiest time of the New York session. This allows the catching of the day’s biggest moves and increases the chances of profitability as long as you are in the right direction. Similarly, the best days to trade for Trader A are Tuesday, Wednesday and Thursday. History shows that these three days of the week are when the bulk of the week’s moves happen. This is not to say that Mondays and Friday are uneventful. Fridays, for example, are loaded with economic data from the US and Mondays could see the market reacting to movements that occurred over the weekend. However, if the market doesn’t move much between Tuesday and Thursday, most traders begin to look forward to the next week as soon as the London session closes on Thursday. So for Trader A, trading the London Session without missing Tuesday, Wednesday and Thursday is the best claim to regular profits.
For Trader B, there is no best time or day to trade. Such traders set pending orders at levels where they expect the market to react and then go about their activities as they wait for price to get those levels. The levels can be breached at any time and during any session. Therefore, it will be unrealistic to mention specific times and days of the week as the best times to trade for Trader B. However, if Trader B’s got triggered during traditionally quiet sessions or trading days, there is a high chance that they will not start seeing any movements on the pair until the busier sessions and days of the week.
So before you begin to take note of the days of the week and sessions to trade, you need to work out your trading strategy.
What is The Truth about Leaving Forex Trading Positions Open over the Weekend ?
When discussing forex trading schedules, many traders are of the opinion that trades should never be carried into the weekend to avoid losing money to market moving events that may occur during that time when the broker platforms are closed for trading.
However, like most rules in forex, this is dependent on the trading strategy at work. A trader with a holistic view of the market from the daily charts will most likely be in a trade from a price level where possible market movements over the weekend will have little or no impact on their trading. This is because such higher charts allow for better accuracy with trades.
If the trader was right in their trading forecast, possible weekend moves will push the market in their favour. Even when they are wrong, their trade position and trade size will more often than not, keep their accounts safe.
Below is an example of a chart of showing the GBPJPY pair in the weeks leading up to and during the BREXIT Vote.
A trader using the double tops trading strategy would have taken a trade around the horizontal line, on the second small green arrow. This would have placed them nicely in the market with nearly a month to go before the big vote. The red arrow shows price action during the weekend before the vote. Price opened for the new week with a gap that could be detrimental for traders that have entered positions in the preceding week, expecting a continuation of the downward trend. The market trended upwards for a few days, before the big day (big green arrow) sending price back down strongly. In all of these, the position of the trader with a long term view of the market stayed largely unaffected with only profit numbers changing while the trader with a more short term strategy or view would have been affected by the weekend gap that occurred before the BREXIT week.
So, should you close all your positions before the weekend? It depends on your trading strategy. Daytraders with a super short term view of the market may have no business leaving positions open but longer term traders are unfazed by minor price movements over the course of a trading month. Even during a major event such as the BREXIT vote.
Desire to Trade
In the episodes of this podcast, Etienne Crete provides an avenue for aspiring forex traders to learn valuable lessons. He interviews some of the most well-known minds in the forex trading space, helping to uncover useful techniques that listeners can gain from.
Making the decision on when to trade is not something that should be done on a whim. It should be guided by your experience, trading persona and your trading strategy. Intraday traders are more likely to benefit from trading the busiest session, which is the London session while long term traders are less likely to care about trading sessions.