Let’s Start From the Beginning
Forex Trading is the exchange of currencies through buying and selling with an aim of making profit. In foreign exchange, currencies are traded in pairs whereby the value of one currency is measured and exchanged against the other. For example;
If you buy the currency pair EUR/USD and the value of Euro rises against the US Dollar, then your trade becomes profitable. It simply means you bought the Euro currency and sold the Dollar.
The foreign exchange market is usually open for 24 hours and is most active during the weekdays. Therefore it provides a great opportunity for traders to enter and exit the market at the time that is convenient for them.
So How Does That Effect Trading Times?
In order to make a killing when trading Forex, traders should consider the times at which the foreign exchange market is extremely busy. To understand and select the best time to trade in the Forex market, it is imperative to know the different trading sessions and the time period in which they operate.
There are three main trading sessions of Forex trade around the world. They are the Tokyo Session, London Session, and New York session. Price movements in the three trading sessions differ from each other. The time below for each session is based on the Nigerian Time Zone.
This session opens at 12.00 am and closes at 8:00 am. The main participants in this session are commercial banks and central banks. The currencies that are traded the most are Australian Dollar(AUD), New Zealand Dollar(NZD), and the Japanese Yen(JPY).
This session opens at 8:00 am and closes at 4:00 pm. This session is the most active in the market due to the huge amount of transactions that take place. It is also the session where most trends commence. The currency pairs traded most during this session are EUR/USD, GBP/USD, USD/JPY, USD/CHF, EUR/JPY and GBP/JPY.
New York Session
This session opens at 1:00 pm and closes at 9:00 pm. Liquidity is highest in the morning and most economic reports are disclosed at the start of the session. Banks and multinational companies are the major participants in this session. The most active currencies in this session are the British Pound, US Dollar, Australian Dollar, Euro, Japanese Yen, Swiss Franc, Canadian Dollar and New Zealand Dollar.
Sydney is where the Asian trading session starts. This session opens at 5 pm and closes at 2 am EST. During this session, the major participants are exporters and central banks.
Liquidity is normally low considering low transactions as compared to other trading sessions. However, there may be some volatility during the Sydney-Tokyo overlap. The major moves can be seen in currency pairs such as AUD, NZD, and JPY pairs.
The Sydney session may give an idea to traders on what actions they should take during the other trading sessions.
Best Time to Trade Forex
The best time to trade Forex is within the first five hours of the trading sessions mentioned above. However, it is recommended that you make trades during the London-New York Session overlap. This is when both the London and New York sessions are open between 1:00 pm and 4:00 pm. At this time there are a lot of transactions taking place thus making it significant to enter a trade. Tuesday, Wednesday, Thursday and early Friday are the most active days in the Forex market.
Trading EUR/USD, GBP/USD currency pairs will give very good results between 1pm and 5pm Nigeria time, when two largest financial centers (London and New York) are trading like crazy.
So most action happens during the middle of the week.
- When two sessions are overlapping
- The European session which is the busiest
- The middle of the week when there is the most movement
Worst Time to Trade Forex
The worst times to trade in the foreign exchange market are late Fridays, weekends and during holidays.
- Fridays – The liquidity goes down
- Holidays – There is not much movement
- Major news events – Too risky unless you are a very experienced trader (and perhaps not even then!)
Trading on Sundays
Brokers are open during weekdays from 00:00 on Mondays until 24:00 Friday nights. However if you trade with an Australian broker, like Pepperstone or IC Markets you can actually trade on Sundays starting from 15:00 Nigerian time. During the Australian Summertime, you can start an hour earlier at 14:00 in Nigeria. This is because of the time difference, with trading available in Australia from midnight local time and it still being Sunday in Nigeria.
In conclusion, Forex trading is a great income earner and in order to make consistent profits, you should know the best times to enter and exit the markets. In addition, you should be disciplined in the trading strategies you use and before getting into the real market, practice with the demo accounts provided by recommended brokers in order to see if it’s right for you before you invest.
To learn more about trading please visit our Forex Education section here.