11 September, 2020 | AtoZ Markets – The forex market is the world's biggest financial market that is open for 24/5. The best part of the forex market is that it does not have any central authority. Therefore, a trader can trade from any location and any time and profit from the market. The convenient time table, excessive liquidity, presence of Institutional traders, and availability of information make forex trading easier for retail traders.
Moreover, after the financial crisis of 2008, most of the multinational companies and individuals became aware of minimizing the risks that made them invest in currency markets to mitigate the foreign exchange risks.
However, the forex market is open 24 hours does not mean a trader should trade at any time. The forex market is driven by institutional traders, usually central banks and multinational companies. It is easy to understand that banks are not open 24 hours. Therefore, if we look for the institution's liquidity, we should focus on trading hours only.
Why Forex Market Hours Matter?
In every trading strategy, timing is an essential element. It is better to wait rather than make a trade and hold for an uncertain period. If you know when the market might move, you can take the trade exact before the time. As a result, it would decrease uncertainty and reduce the pressure of holding trade.
For swing traders and position traders, the trading hours have less impact as they hold the trade for more than a day. However, knowing of forex market hours would allow you to have better execution of the trade.
When European banks are open, you would see a decent movement in European currencies. On the other hand, in the US trading session, there would be a decent move in most of the currencies and commodities in the world as the US dollar is the reserve currency in the world.
If you are a technical trader, you should include forex trading hours in your trading strategy. For example, if you find a good buy trade setup in EURUSD in the Asian session, you would know that it might not work. Therefore, you can wait for the London session to have a better price after the first London Open Spike. Similarly, JPY moves well in the Asian session and the USD moves well in the New York Session.
Forex Market Hour Explained
The forex market is a decentralized and automated marketplace with millions of participants around the world. There is no central exchange like the New York Stock Exchange or London Stock Exchange. Most of the transaction happens remotely through internet connectivity and orders. In this way, the forex market provides daily $6.6 trillion average turnovers, making it the world's biggest financial market.
The forex market is never open, and it runs on a 24/5 basis. It starts from 10:00 PM UTC on Sunday and closes at 9:00 PM UTC on Friday. All traders, liquidity providers, traders, and investors use the same timeframe from every country.
Based on the trading session, we can distinguish the trading hour by the following time hubs:
- Sydney, Australia: 10 PM to 7 AM UTC
- Tokyo, Japan: 12 AM to 9 AM UTC
- Frankfurt, Germany: 7 AM to 4 PM UTC
- London, England: 8 AM to 5 PM UTC
- New York, U.S.: 1 PM to 10 PM UTC
The forex market is made up of many international financial markets. Therefore, there is some time where more than one trading session remains open, which is known as the Overlap session. In the overlap session, there are more participants than the usual day.
Let's have a look at the overlap trading session in the UTC:
- European-American: 12 PM to 4 PM
- Asian-European: 7 AM to 8 AM
- Australian-Asian: 11 PM to 6 AM.
If you trade in cross currencies, the forex market hours London and Asian will provide better liquidity. However, in major currencies, the movement starts from the London open that continues towards the New York close. Moreover, the New York closing price provides a significant indication of the price for the next day.
Best Forex Market Hours
In the above section, we have seen the importance of forex market hours and an explanation of the trading session. However, to get a better output, we should trade when maximum market participants are available.
The US Dollar is the reserve currency for most of the countries in the world. Therefore, many international transactions and commodity values are made by US dollars. In this way, more than 70% of forex liquidity comes from US dollars. After the US dollar, the Euro is the most traded currency. Therefore, if we consider the trading hours of the Eurozone and the US, we will find the best forex market hours.
Therefore, the overlap between London and New York trading sessions is the best forex market hours among the forex trading session.
The best forex market hours start from 12 PM UTC to 4 PM UTC, usually from the London Afternoon to New York morning. In this timeframe, major US equity markets open, and the London Exchange prepares to close.
In addition to that, the London and New York overlap includes most of the key economic releases and market driving events. Within this period, CPI, retail sales, GDP, and central bank activities are releases that immediately impact the currency market. Based on the previous activities, both the Federal Reserve and Bank of England release their important economic policies within 12 PM to 4 PM UTC.
Summary
As per the above discussion, we can say that London and New York Overlap is the best forex market hours where most of the major market participants are in the market. Therefore, if you want to take any intraday trade, you should make a trading plan before the London and New York Overlap.
Moreover, if you don't trade based on the forex market hours, you can use this timeframe and idea regarding the market movement and liquidity.
In forex trading, no trading strategy can guarantee a 100% profit. Therefore, whether you trade based on the technical or fundamental analysis, you should follow strong money management rules. Moreover, the timeframe and the presence of liquidity providers are additional matters that increase the probability of a trading strategy.
Think we have missed something? Let us know in the comment section below!