The foreign exchange market, or forex, is a global decentralized market. Optimal times to trade the forex market are when the market is most active, which is often when the trading hours of major regions overlap.
With higher activity, trading spreads, or the differences between bid prices and ask prices, tend to narrow. At these times, less money goes to the market makers facilitating currency trades, which means traders can pocket more.
- Four major foreign exchange markets in London, New York, Sydney, and Tokyo have different trading hours.
- Traders can benefit from knowing when the trading hours overlap.
- During overlapping forex market hours, volatility tends to increase.
The 4 Major Forex Markets
Within the global market, the four major forex exchange markets are in London, New York, Sydney, and Tokyo. Forex traders often commit their hours to memory, paying particular attention to the hours when two exchanges overlap.
When more than one market is open at the same time, this increases trading volume and adds volatility which is the degree to which equity or currency prices change. The volatility can benefit forex traders.
While some investors fear market volatility because of the increased risk, forex traders generally prefer greater volatility because they have the potential to earn higher profits.
Worldwide Forex Markets Hours
The forex is fully electronic and open somewhere in the world between 5 p.m. Sunday and 4 p.m. Friday Eastern Standard Time (EST). Each region has major exchanges with unique trading hours from Monday through Friday. From the average trader's perspective, the four key time windows RE (all times are in EST):
- 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.
While each exchange functions independently, they all trade the same currencies. So, when exchanges in two markets are open, the number of traders actively buying and selling a given currency greatly increases. The bids and asks in one forex market exchange immediately impact bids and asks on all other open exchanges. That reduces market spreads and increases volatility, including in the following windows:
- 8 a.m. to noon, with both the New York and London markets open
- 7 p.m. to 2 a.m., with both the Tokyo and Sydney markets open
- 3 a.m. to 4 a.m., with both the Tokyo and London markets open
Many investors consider the best trading time to be the 8 a.m. to noon overlap of the New York and London exchanges. These two trading centers account for more than 50% of all forex trades. On the flip side, from 5 p.m. to 6 p.m., trading mostly happens on 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 will come to light. Political or military crises that develop during otherwise slow trading hours could potentially spike volatility and trading volume.
Certain economic data that can move the market has a regular release schedule. Key economic data include employment figures, Consumer Price Index (CPI), trade deficits, and consumer confidence, and consumer consumption. Knowing when this news is set for release can help you plan when to trade.
High-Volume Forex Trading Hours Can Be Risky
Forex traders should proceed with caution, because currency trades often involve high leverage rates of 1,000 to 1. While this ratio offers tantalizing profit opportunities, it comes with an investor's risk of losing an entire investment in a single trade.
Forex trading is risky. New forex investors should consider opening accounts with firms that offer demo platforms, which let them make mock forex trades. With the practice trades, you can tally gains and losses to see how you would perform with real trading. Once investors learn become more experienced, they can begin making real forex trades.
Like many other investments, you can earn significant profits, but you could also suffer losses. So, make it a point to prepare for the risks involved.
Frequently Asked Questions (FAQs)
How does forex trading work?
Forex trading is the trading of different currencies to make money on changes in currencies' values relative to one another. Most of this trading occurs via electronic platforms or over the phone rather than on exchanges. Each trade involves a pair of currencies.
How many hours of trading per day do you need to make money in forex?
Your ability to make money trading forex depends on the proportion of trades you profit from and the size of your profits, not necessarily the time you spend.
How do I start trading forex?
To start trading forex, you'll need to make an initial deposit with a brokerage. Many brokerages don't have a minimum amount for trading forex, but you typically need between $50 and $500. Consider making practice trades on a demo platform before you start risking your real money.