The most crucial factor in a successful FX transaction is timing. The Forex market is open 24 hours a day, five days a week, so traders can trade at any time. Not all hours, however, are equal. It is possible to know the best times to trade in order to increase the chance of profitability and decrease unnecessary risk due to market volatility.
The Forex market is unique due to the reason that it is not a central exchange. This market operates globally through a chain of banks and brokers and many financial institutions based around the globe. Therefore, the market in Forex is operational across different time zones, and their highest trading time is when all the major financial markets overlap.
The best time to trade Forex typically happens when two of the biggest trading sessions overlap. The three fundamental fx trading sessions are known as the Asian session, the European session, and the North American session. Every one of these sessions brings forth a different level of market action and volatility.
Asian session – beginning from 11 pm GMT and until 8 am GMT – is usually the least volatile. While there is still trading activity, the movement tends to be less turbulent with fewer significant price movements. This makes it a perfect time for quieter market traders who want to trade the smaller price fluctuations. Those pairs that include Asian currencies like the Japanese yen or Australian dollar tend to be busier during the session.
The most active time in the European session is from 7 a.m. GMT to 4 p.m. GMT because that is when Europe houses many of the world’s largest financial institutions. This usually causes more volatility as European markets open up during the time economic data is released and participants in the market respond accordingly. Generally, volumes during this time tend to be higher on those pairs that contain the euro, British pound, and Swiss franc.
The North American session overlaps the European session for a few hours, creating high activity during that period. For most people, this is when the best times to trade are between 1 p.m. GMT and 4 p.m. GMT. Overlap means more liquidity and volatility and is where price movements tend to be the greatest. Most of the trades are held in the US dollar, with the most preferred pairs such as EUR/USD, GBP/USD, and USD/JPY.
The overlap between the European and North American sessions is best traded for the ones who need bigger price movements and higher profit expectations. In those hours, the market participants have been shown to be aggressive on data and news and, as a result, will bring much more sizable opportunities for those who would act on those.
Understanding the best times to trade will give you an edge in the fx trading world. Knowing the times when liquidity and volatility are at the highest will provide you with greater opportunities for winning and make the decisions of entry and exit to the market even more informed.