The Forex market is a market that’s open 24 hours a day, five days a week, which means there are many opportunities to trade at any time. However, there are certain periods when the market tends to be more active and volatile, offering potentially better trading opportunities, especially for short-term and active traders.
Before we have a closer look at the best moments to trade the Forex market, let’s come back to what the Forex market is and what the advantages and limits to integrate currency trading to your strategy are.
What is the Forex market?
The Forex market, also known as the foreign exchange market or FX, facilitates the exchange of different national currencies worldwide. It is a highly liquid market, with more than $7.5 trillion exchanged every day according to the 2022 Triennial Survey of turnover in OTC FX markets, and operates continuously for 24 hours a day, starting on Sunday and ending on Friday evening (European time).
Why should you trade the Forex market?
- It is a market that is open around the clock.
- The Forex market is extremely liquid and profits from a very large daily trading volume.
- It is a great market for short-term traders (scalpers, day traders, swing traders).
- Forex trading is usually associated with margin and leveraged trading, which means that FX traders can start small and potentially realize bigger profits.
- Derivative products on Forex allow traders to profit from rising prices with long positions and falling prices with short positions.
- It is easy to trade currency pairs, as all the reputable online brokers and trading platforms offer easy access to Forex trading.
Why should you avoid the Forex market?
- The Forex market isn’t regulated.
- Positions on currencies are over-the-counter trades.
- It is a very volatile market.
- Because of the possible high leverage you can use while trading Forex, and the high volatility, there is a greater chance to face significant losses (in some cases you can even lose more than your initial trading capital).
When is best to trade the FX market?
If you want to be successful when trading the Forex market, you need to know when you have a greater chance of taking advantage of the best FX trading opportunities.
This is especially true if you’re following an aggressive and active trading strategy such as scalping and day trading, as with these strategies you open and close many trading positions (in a few seconds, minutes or hours) to accumulate small profits throughout your trading session.
To maximize your chances of success in shorter-term trading styles, it is therefore crucial to have precise timing for market entries and exits by focusing on the most liquid time of a trading session.
Getting the timing right is crucial, because it can greatly affect your trading day's outcome. Less-liquid trading sessions can result in higher transaction costs, such as wider spreads, which can reduce your potential profits. It's important to be mindful of liquidity levels when trading to minimize transaction costs and maximize your chances of profitability.
So, when is the best time to trade the Forex market?
1) Trading during the right Forex trading session for the currency pair you’re focusing on
You have to understand that each currency pair is influenced by different financial centers and their respective trading sessions that you need to be aware of when trading currency pairs, as they influence the level of liquidity, trading volume and costs.
Every currency pair has a "home market" associated with its base currency, and trading during the currency pair's home market session can result in higher liquidity and tighter spreads, which is always better for your trading strategy.
There are different Forex market sessions to be aware of, depending on the opening of the different financial centers and the currencies they focus on.
Sydney trading session
The Sydney trading session commences with the opening of the market in Sydney, Australia, from 10:00 PM to 7:00 AM UTC. While it may be perceived as the Forex session with relatively less impact compared to other major sessions, there are still opportunities to explore, particularly with currency pairs involving the Australian dollar (AUD).
Economic news releases and developments from Australia and neighboring countries, such as New Zealand, can influence price movements during this session. Traders who specialize in trading the AUD or prefer trading during quieter market hours may find value in the Sydney trading session.
Tokyo trading session
The Tokyo trading session kicks off with the opening of the market in Tokyo, Japan, from 12:00 AM to 9:00 AM UTC. This session primarily centers around currency pairs that involve the Japanese yen (JPY).
During the Tokyo session, market participants closely monitor economic indicators and news announcements from Japan and other key Asian economies, as they can have a notable impact on currency movements and contribute to increased volatility in the session (the same could be applied to economic data from other major financial hubs from the previous day). Traders focusing on JPY currency pairs or seeking opportunities based on Asian market developments may find value in trading during the Tokyo session.
London trading session
The London trading session starts with the opening of the market in London, United Kingdom, and is widely regarded as the most active and liquid session in the Forex market. It spans from 8:00 AM to 5:00 PM UTC. This session overlaps with the end of the Tokyo session and the beginning of the New York session, leading to a significant increase in trading volume and market activity.
During the London session, major currency pairs involving the euro (EUR), British pound (GBP), and Swiss franc (CHF) are actively traded. The high liquidity and participation from major financial institutions and traders during this session create favorable trading conditions for these currency pairs.
Traders focusing on EUR, GBP, and CHF currency pairs often find increased market movement and liquidity during the London session, making it a popular choice for active trading
New York trading session
The New York trading session, commencing with the opening of the market in New York, United States, from 1:00 PM to 10:00 PM UTC, is renowned for its substantial trading volume and volatility. This session witnesses heightened activity, particularly in major currency pairs involving the US dollar (USD). Therefore, traders focusing on USD currency pairs often find many trading opportunities during this session.
The release of economic news and indicators from the United States and Canada can have a substantial influence on the market, contributing to increased volatility and potential trading opportunities.
Sum up
By considering the respective trading sessions for the currencies you focus on, you can optimize your trading opportunities by capitalizing on the specific characteristics and trading dynamics of each session.
If your focus is on Asian currencies such as the AUD, NZD, or JPY, as well as cross-pairs involving these currencies, it is best to trade during the Asian trading sessions (Sydney and Tokyo), as you can expect increased liquidity, larger price movements, and lower spreads, which can be advantageous for traders.
On the other hand, if you prefer to trade currencies like the EUR, GBP, or CHF, it is recommended to align your trading with the European session. For trading the USD and CAD, the American trading session is the most suitable.
2) Trading during the time when trading sessions overlapped
As we explained, there are times during which two trading sessions overlap, which often provide favorable trading conditions, due to increased trading volume, heightened volatility, higher liquidity and more efficient markets.
Tokyo and London overlap
The Tokyo/London overlap takes place from 7:00 AM to 8:00 AM UTC, when the Tokyo session is winding down and the London session is beginning. While it is a relatively short overlap, it still offers increased liquidity and trading opportunities, particularly for currency pairs involving the JPY, EUR, and GBP.
London and New York overlap
This overlap occurs from 1:00 PM to 5:00 PM UTC, when the London session is coming to a close and the New York session is starting. It is considered one of the most active and liquid periods in the Forex market, especially for those trading major currency pairs involving the EUR, the GBP, and the USD.
Sydney and Tokyo overlap
Sydney and Tokyo’s overlap occurs from 12:00 AM to 2:00 AM UTC, connecting the end of the Sydney session with the start of the Tokyo session, providing some level of liquidity and potential trading opportunities for currency pairs involving the AUD and JPY.
3) Trading when news and economic publications are released
When major economic or statistics are released, volatility often increases, triggering significant short-term price movements depending on market participants' reaction to the publication that Forex traders can take advantage of.
This is called “news trading” and is somewhere between technical and fundamental analysis.
Some traders use a strategy where they place both buy and sell orders on a currency pair just before a major news release to take advantage of the market's volatility regardless of which way the prices move. Others prefer to trade after the news release by assessing the immediate market reaction and making trading decisions based on their interpretation of the news impact.
When they observe a strong and sustained price movement in one direction, they enter positions in the direction of the momentum, aiming to ride the trend and capture further price appreciation.
Some Forex traders prefer to use a “fading the news” approach where they anticipate that the initial market reaction to the news release may be overdone and that prices will eventually reverse. Therefore, they enter positions opposite to the initial price movement, expecting a corrective move in the opposite direction.
“Breakout trading” is also popular with news trading, which involves identifying key levels of support or resistance before a news event and taking advantage of when prices move beyond these levels to ride the price movement.
When are the 4 worst times to trade the Forex market?
Just as it’s essential to know when to trade to make the most of your Forex trading strategy, you also have to know when to avoid trading currencies. Here are the worst times to trade Forex:
- On Fridays - Because liquidity and trading volume in the Forex market tend to decrease, traders often show reduced enthusiasm or increased caution due to the approaching weekend. Moreover, any positions held over the weekend are subject to potential market gaps and price movements when the market reopens on Sunday.
- On Sundays - Because the week hasn’t really started and you might face limited liquidity and gaps in price
- During Holidays - During holiday periods, the most important market participants, such as financial institutions, are often away from their trading desks or the markets face reduced participation, which has an impact on the market liquidity, trading volume and volatility.
- Major news events (if you’re risk averse) - When major news are released, sharp and sudden price movements can occur due to increased uncertainty and activity, which can trigger higher volatility, wider spreads and slippage. During such periods, it is also harder to maintain emotional discipline.
Top 12 tips to follow to make the most of Forex trading
- Focus on a few currency pairs
- Know the market(s) you’re trading
- Study Forex correlation
- Take your trader’s profile into account
- Manage your time wisely
- Decide when to trade and when not to, according to your trader’s profile and risk tolerance
- Understand the risks
- Don’t forget about money management
- Think about liquidity and trading volume
- Consider multiple timeframes to get a comprehensive view of the market
- Keep a trading journal to review objectively and improve your trading
- Adopt flexible and dynamic trading strategies that are based on market conditions.
Why should you trade Forex with ActivTrades?
In addition to being a multi-regulated CFD and Forex broker, ActivTrades has more than 20 years of experience and offers its services to over 100,000 traders in more than 170 countries that have executed more than 500,000,000 traders. The MiFID compliant broker also profits from international recognition and is the winner of more than 55 global rewards. It also offers professional support in more than 14 languages.
What are other strengths of ActivTrades for Forex traders?
- 50 currency pairs
- Spreads from 0.5 pips
- 3 trading platforms (ActivTrader powered by TradingView, MT4 and MT5)
- Advanced cloud infrastructure powered by IBM
- Fully automated trades
- No-requotes
- Extremely fast trade execution (under 0.004 seconds)
- Over 100k per second trade bandwidth
- Over 93.6% of the trades are filled at requested price or better
- All trading styles allowed
- Unique features (progressive trailing stop, pullback order, SmartLines, SmartPatterns…)
- Portfolio diversification possible with more than 1,000 available though 7 asset classes.
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