Although the forex market is open 24 hours a day, there are a few hours that are considered the best times to trade forex, and it is extremely important for a trader to identify these times so as to increase profit potentials. It is true that the forex market is open 24 hours a day, but that doesn’t mean the market is active and worth trading for the entire day. The idea is to trade when the market is the most volatile because volatility means that a market is moving, and money is made when the markets are moving, not when the market is quiet and calm.
Since the currency markets follow the sun, as markets open and close, there are changes in market sentiment and if your intention is to be day trading forex these are the most important times of the day. There are a number of trading centers in the world. Just to name a few of the major ones we start down under in Sydney, Australia, Tokyo, Hong Kong, Frankfurt, London and New York. By far the most important of these with regards to trading forex are Tokyo, London, and New York.
Due to the planet’s natural rotation around the sun, the first financial center to open up for the day is Tokyo, then 6-7 hours later London opens up and finally, New York is the last market to open for the day. The volumes for trading forex swell enormously during these times. When there is more active forex trading, there will be more liquidity in the market. Higher liquidity means that slippage is less likely, orders are more likely to be filled and the spreads on currency pairs are reduced. These tend to be optimal times to trade.
Although most traders prefer to simply operate during their normal waking or business hours, some traders may prefer to adjust their operating hours based on the currency pairs they want to trade the most. For example, a person interested primarily in trading in the Japanese Yen may not be able to enjoy the same degree of liquidity and information flow during the New York trading session as they might see during the Asian trading session when large Japanese banks compete for forex business and Japan releases its key economic data.
When setting up a trading schedule, it is important to run a strong balance between market overlaps and news releases. Traders looking to enhance profits should aim to trade during more volatile times while keeping an eye on what economic data is released when. This balance allows part-time and full-time traders the opportunity to set a schedule that gives them peace of mind, knowing that opportunities are not slipping away when they take their eyes off the markets.