The Best Forex Trading Hours

The 4 Major Forex Exchanges

The four major forex exchanges are located in London, New York, Sydney, and Tokyo.3 Forex traders need to commit their hours to memory, with particular attention paid to the hours when two exchanges overlap. When more than one exchange is simultaneously open, this not only increases trading volume, it also adds volatility (the extent and rate at which equity or currency prices change). Both of these factors can benefit forex traders.

This may seem paradoxical. After all, investors generally fear market volatility. In the forex game, however, greater volatility translates to greater payoff opportunities.4

Worldwide Forex Markets Hours

Each exchange is open weekly from Monday through Friday and has unique trading hours, but from the average trader's perspective, the four most important time windows are as follows (all times are shown in Eastern Standard Time):

• London: 3 a.m. to 12 p.m. (noon)
• New York: 8 a.m. to 5 p.m.
• Sydney: 5 p.m. to 2 a.m. (midnight)
• Tokyo: 7 p.m. to 4 a.m.3
   

While each exchange functions independently, they all trade the same currencies.5 Consequently, when two exchanges are open, the number of traders actively buying and selling a given currency dramatically increases. The bids and asks in one forex market exchange immediately impact bids and asks on all other open exchanges, reducing market spreads and increasing volatility. This is certainly the case in the following windows:

• 8 a.m. to noon, with both New York and London exchanges open
• 7 p.m. to 2 a.m., with both Tokyo and Sydney exchanges open
• 3 a.m. to 4 a.m., with both Tokyo and London exchanges open

The most favorable trading time is the 8 a.m. to noon overlap of New York and London exchanges. These two trading centers account for more than 50% of all forex trades. On the flipside, from 5 p.m. to 6 p.m., trading mostly happens in the Singapore and Sydney exchanges, where there is far less volume than during the London/New York window.

There can be exceptions, and the expected trading volume is based on the assumption that no major news developments come to light. Political or military crises that develop during otherwise slow trading hours could potentially spike volatility and trading volume.1

High-Volume Forex Trading Hours Don't Always Translate to Profits

Forex traders should proceed with caution because currency trades often involve high leverage rates of 1000 to 1.6 While this ratio offers tantalizing profit opportunities, it comes with an investor's risk of losing an entire investment in a single trade. A 2014 Citibank study found that just 30% of retail forex traders break even or better. Tellingly, 84% of those polled believe they can make money in the forex market.7 The chief takeaway is that new forex investors should open accounts with firms that offer demo platforms, which let them make mock forex trades and tally imaginary gains and losses. 

Once investors learn the ropes and become seasoned enough, then they can confidently begin making real trades.

Reprinted from The Balance  the copyright all reserved by the original author.