Forex market hours: what is the best time to trade?

Today I will tell you what is the best time to trade forex and what trading strategies to use depending on the time of the sessions.

I think everyone who’s ever thought about trading in financial markets asked themselves about the working hours of a stock exchange or Forex working hours. Unfortunately, so little attention is paid to this issue during regular training courses which can be found everywhere on the internet or taken at a brokerage company.

However, the opportunity to earn on a stock exchange depends directly on such a parameter as trading time. If a trading session is closed, the market doesn’t work and there’s no opportunity to open trades and earn from them. So, let’s find out when Forex trading sessions open.

The article covers the following subjects:

  • Working hours of stock exchanges
  • Forex time zones
  • Best time to trade forex
  • “Inter-session flat” strategy
  • Stock time
  • Сonclusion

Today I’m going to examine in detail such important questions as:

  1. What is Forex trading time?
  2. When does trading begin at Forex?
  3. When does Forex open?
  4. How does your profit depend on the part of a day?
  5. What is time volatility?
  6. What is an inter-session flat?
  7. What are the types of trading sessions and at what time do they start?

I’m going to give answers to these and some other questions in this article. The main question here is when and how one can access the market.

Working hours of stock exchanges

There’s a stock exchange in every country, or to be more precise, there’s the biggest stock exchange in each part of the world and each of them works its own hours. Below, there’s a list of the biggest stock exchanges of the world. I’ve also indicated their working hours using the common world standard UTC/GMT 0:

TSE TOKYO(24:00 – 06:00)
SSE SINGAPORE(01:00 – 09:00)
LSE LONDON(08:00 – 16:00)
FWB FRANKFURT(08:00 – 16:00)
MOEX MOSCOW(07:00 – 15:45)
CHX CHICAGO(14:30 – 21:00)
NYSE NEW YORK(14:30 – 21:00)

So, one can work on a stock exchange in the daytime while at night stock exchanges are closed. For example, if you are in the Asian region, you simply can’t trade on NYSE in the daytime. You’ll have to content yourself with the local stock exchange TSE. Sure, the world is accustomed to this and it doesn’t cause any inconvenience, but there are some situations when one urgently needs to have 24-hour access to trading. I can easily recall a situation which took place in 2008 when most investors on the American exchanges were holding positions and learnt about the beginning of that famous collapse after trading was closed. Naturally, they could do nothing and simply didn’t have the opportunity to get rid of their assets. They only had to wait till the morning. Then a trading session opened in the morning and quotes were issued with huge price gaps (30% and more). If the stock exchange hadn’t closed at night, they could have got rid of their assets with smaller losses.

Not only can a price gap between the closing price of a previous period and the opening price of a new one occur in the time of a serious perturbation. On a stock exchange, price gaps caused by a break in trading are normal and take place before almost every opening of a trading session.

The picture above is an example of a price gap that took place in the chart of APPLE shares. The difference between closing and opening prices amounted to 20 points, which is quite a big gap for an asset. Due to such work specifics, the traders who use short-term speculative strategies often face this kind of surprises which may be quite costly.

Forex time zones

The main thing that differentiates Forex from a stock exchange is decentralization. It means, one doesn’t need to “get linked” to a certain place and time to get access to trading operations. Unlike stock exchanges, Forex works 24 hours a day. Why? Because its operation is secured by global banks, everywhere in the world and in all time zones.  The round-the-clock operation of the currency market is provided by 4 trading forex session times which follow one another:

  1. Pacific (21:00 – 05:00 UTC/GMT 0).Two biggest stock exchanges provide for the operation of the Pacific session in this time zone: NZX WELLINGTON and ASX SYDNEY. The Pacific trading session opens at 24:00 UTC and closes at 08:00 UTC.
  2. Asian (24:00 – 09:00 UTC/GMT 0).Three biggest stock exchanges provide for the operation of the Asian session in this time zone: HKE HONG KONG, SSE SHANGHAI, and TSE TOKYO. The Asian trading session opens at 03:00 UTC and closes at 11:00 UTC.
  3. European (07:00 – 16:30 UTC/GMT 0).Four biggest stock exchanges provide for the operation of the European trading session in this time zone: LSE LONDON, SIX ZURICH, FWB FRANKFURT, and JSE JOHANNESBURG. Sure, there’s a fifth stock exchange in this region – MOEX MOSCOW, the Russian stock exchange, but it’s not as important. The European trading session opens at 10:00 UTC and closes at 19:30 UTC.
  4. American (14:30 – 21:00 UTC/GMT 0).Three biggest stock exchanges provide for the operation of the American trading session in this time zone: CHX CHICAGO, NYSE NEW YORK, and TSX TORONTO. The world’s biggest stock exchange – NYSE (New-York Stock Exchange) – is open during the American session. The American trading session opens at 17:30 UTC and closes at 24:00 UTC.

I need to mention an important thing here. The opening and closing times correspond to the current winter time. Once the clocks switch to the summer time, the schedule of the sessions goes 1 hour forward.

Trading sessions follow one another and may even overlap. That’s why the Forex market is open 24 hours a day. Such a parameter as volatility depends on which session is open now. Volatility shows the number of price fluctuations per 1 time unit and differs from one session to another. The part of the world where most trading participants reside and the biggest stock exchanges are located boast the highest volatility. Also, the volatility of a particular instrument depends on the regional interest in this instrument. For example, AUD (Australian dollar) is traded the most actively during the Pacific trading session.

However, the round-the-clock operation of Forex doesn’t mean it never closes. It does, at the weekends. Saturday and Sunday are normal days-off in Europe. On these days, the market is closed and trading is impossible. The market closes at 23:59 on Friday and opens at 00:01 on Monday. Price gaps similar to gaps which take place on a stock exchange are often registered at the opening of a trading session at Forex.

The picture below shows the way volatility changes in the chart of EURUSD.

We see that only the Asian session is open in the morning while Europe and America are closed. Naturally, there’s little interest in trading these currencies, which is reflected in minimum price fluctuations (grey zone). Another example is when the European session opens. The price starts fluctuating more actively and volatility grows twofold and more. So, if your strategy implies working under low volatility, you’d better trade this pair when Europe and America are closed.

Best time to trade forex

How to decided when is the best time for trading at Forex if each session has its own unique characteristics? Let’s examine characteristics of each session and determine if there is the best time to trade on Forex.

As you know, demand for the national currency increases at the opening of the trading session in this country. For example, trading volume in the yen increases during the Asian session because at that time Japanese companies buy and sell currency pairs with the Yen in order to do business with the companies in other countries. Demand for the Euro is increasing during the European session. At nights trading slows down as European companies are closed and business with other foreign companies is decreasing.

Therefore, volatility of different trading instruments changes from session to session.  

  • Trading day starts at the Asian session, which opens at 22:00 (GMT) with the opening of trade exchanges in Sydney. Usually, changes to the exchange rates are minor at this session and trading volume is low. This “lull” continues till the opening of the exchange in Tokyo at 00:00 (GMT). At this trading session the demand for the Yen, Australian dollar and New Zealand dollar is usually high.
  • One hour before closing of the trading session in Tokyo, London stock exchange opens at 8:00 (GMT). At this time the number of trading participants grows significantly, the demand for all currency pairs increases, trading volumes are high, while spreads are reducing. Liquidity during the European session is also very high. About 40% of the total trades is carried out at the European session.
  • At 13:00 (GMT) New York exchanges opens and the American session starts. Until 17:00 (GMT) both European and American exchanges work simultaneously, which increases trading volume and volatility. It is believed that at this period trading is the most active and aggressive, as volatility is high, which leads to the rapid changes in price.

As you can see it is possible to earn money at Forex at any time. Therefore, there is no the best time for trading. Traders can choose the most suitable time for them with respect to the currency pairs and trading strategy they use.

However, there are some recommendations on the timing of transactions. At the time of the overlap of the sessions and the release of the important financial news, volatility in the pairs increases, which requires from a trader great attention and prompt reaction when opening new positions, as at this time prices can suddenly change movement direction. It is important to know the time of major economic events in order to avoid trading in such periods of high volatility as the risk of loss is significantly increasing. During the days of public holiday trading activity is usually low.

Information on the time of the trading sessions and the other fundamental factors is as important to a trader as the technical tools.

Let’s view the procedure of making trades in Forex market

A trader selects a broker, opens an account, and makes a deposit. After that, he/she can start trading in the market. What are the principles of online trading?  A broker is an intermediary which facilitates trades. When a client signs a contract with a broker, he/she receives a trading account and access to the software for making transactions.

Trading terminal shows the current quotes of all trading assets and has a comprehensive set of tools of technical analysis on the price charts.

After making an analysis and making the trading decision to open a trading position, a trader gives a trading order for a specified volume to a broker. Volume in Forex is calculated in a standard lot of 100,000 units of the base currency. The volume depends on the type of trading account. Many brokers offer to open micro–accounts, enabling a trader to trade with the lowest possible volume.

After opening a position, a trader waits till the price approaches the desired price level for closing a position and profit taking. The difference between the opening and closing prices is calculated in pips and makes your profit. Knowing the value of a pip, a trader can calculate his/her profit in cash.

Here is an example of making a trade at Forex:

  1. Let’s assume that the price of the currency pair EURUSD is 1.1040.  
  2. After making an analysis and forecast of the movement in the pair a trader makes a decision to open a long position.
  3.  A trader buys one standard lot at the current price of $110.400 per Euro.  
  4. A target for taking profit is at the price level of $1.1096.  
  5. A trader can close a position either manually or by placing an order which will be executed automatically when the price reaches a specified price level. 
  6.  In the result of the sell transaction of one lot at the price of 1.1096, a trader buys 110. 960 USD.
  7.  Profit, in this case, will amount to 56 points, or 560 USD.

Optimal trading time

Overtrading is a common pitfall that many investors and traders fall into, particularly in the financial markets. It refers to watching the chart for as long as possible in the hope that a good trading opportunity and entry point will appear in the near future. However, as practice shows, overtrading rather harms than helps. Trading is associated with decision-making based on analysis, i.e., it requires a high concentration level. The longer a trader peers at the monitor searching for a trading setup, the less focused they are. In such a state, maximum concertation becomes impossible, and a trader makes typical mistakes. They open excessive buy or sell trades driven by emotions, impulsiveness, or an insatiable desire to make quick profits; traders skip essential details and frequently change the direction of transactions. 

To maximize your profits and take your trading strategy to the next level, you need to consider such an important parameter as time.

Although the foreign exchange market operates round-the-clock, trading activity and strong price movements are typical only in particular periods. During this time, it is recommended to look at the price charts of the instruments you trade to define entry points according to your trading strategy.

The generally accepted time of maximum activity is the first 2 hours after the opening of the European session and the first 2 hours after the beginning of the American session.

However, there may be exceptions for each currency pair or other financial instrument, and you need to analyze precisely the one you plan to trade.

Note that the most convenient and simple is trading the so-called “imbalance” or “impulse” – when the price moves in a pronounced direction with minimal pullbacks. These are ideal conditions for trading in terms of reward-to-risk ratio.

Therefore, in order to identify the best time for intraday trading, you should analyze the trading instrument you are interested in according to the following algorithm:

  • Define all impulse price movements in the H1 timeframe.
  • Determine the time impulses occur most often for your instrument (as a rule, it will be several hours of activity).
  • Trade only during this time, and continue to analyze the regularities occurring at particular periods. Remember that the market is constantly changing.

You can go further and analyze the most active days of the week similarly. This can also be useful and applicable for swing and medium-term traders who analyze longer timeframes.

“Inter-session flat” strategy

We’ve already examined the working hours of stock exchanges and trading sessions at Forex. Also, we’ve talked a bit about how to use this knowledge. Now, let’s speak about how to make profit from it. I’d like to mention a very old trading strategy based on the work of trading sessions. This strategy may be mainly applied to one currency pair – EURUSD.

The whole point is that there’s a short period of time – 1 hour approximately – during the operation of American and European trading sessions when volatility is low. It happens often but not daily. I mean the period when the European session ends and the American session begins. When 1 hour or so is left till the end of the European session, trading sharply becomes less intense and a narrow sideways channel (flat) is formed. The channel finishes with the opening of the American trading session. The price breaks one of the limits of the channel and moves into the stage of high volatility. I suggest exploiting the breakout of this channel. All we need is to find this flat and place pending orders.

  1. One hour before the closing of the European session, examine the chart and try finding the presence of inter-session flat;
  2. If there’s no flat, give up this idea till next time. If there’s flat, we need to determine its limits;
  3. Place a pending order to buy at the resistance level and a pending order to sell at the support level.
  4. Wait for the opening of the American trading session and follow your pending orders attentively.
  5. If a pending order to buy is triggered  (Buy zone), place a take profit at a distance shorter than or equal to the width of inter-session flat (Profit zone);
  6. Place a stop loss at the  inter-session flat support level (Stop zone);
  7. When either of the orders works, delete the other one to avoid unnecessary risks.
  8. Wait till one of the fixing orders works. The performance of this strategy is nearly 70%.

Stock time

Trading hours of this or that currency or instrument are normally specified by the broker you trade through. They are indicated in the specification of a trading contract. For example, the trading hours of the Russian rouble coincide with the working time of the Moscow Stock Exchange MOEX. The trading hours of shares coincide with the working hours of the stock exchange they are listed on.

Сonclusion

To conclude,I’d like to repeat that it’s extremely important to consider quoting hours of instruments and volatility in your trading strategy. In this respect, the European region is the most attractive as it embraces the two most active trading sessions, and therefore volatility is always high here, from morning till evening. However, high volatility doesn’t necessarily benefit a trader.  The higher the volatility, the higher the factor of market noise (I talked about that in one of my previous articles). As a result, a trader has to avoid short stop orders during this period.