Why are trading hours in forex important?

Although forex can be traded 24 hours a day, five days a week, there are trading hours when activity and liquidity in the markets are higher or lower than at other times. What time of day is appropriate to trade individual currency pairs?

Unlike the stock or commodity markets, forex is open virtually continuously from Monday to Friday (depending on which part of the world you trade in) and can be traded at any time of the day. At first glance, it seems ideal that we can choose a currency pair (or a CFD instrument, which are also traded 24 hours a day in most cases) and open a position on it at any time of the day.

In reality, however, it is not that simple because the various markets on which financial instruments are normally traded are not open 24 hours a day. The 24-hour day is divided into three main trading sessions, Asian, European and American.

The Asian session, which is first on the agenda, is often referred to as the Tokyo session because the main financial centre open at that time is Tokyo. However, we include more countries in the Asian session than just Japan, including Australia, New Zealand, Singapore or China. The start of the trading day/week is thus catered for by the Sydney session, which starts at 21:00 GMT. Two hours later, the Tokyo markets open and this session (Tokyo session) then lasts until 8am.

Before trading in Tokyo closes, the European markets open and the European session begins. This is often referred to as the London session, but even in this case it is not entirely accurate, because in Germany or France the stock markets open an hour earlier than in London. So officially the European session starts at 08:00 GMT, but market activity starts at least an hour before that. European markets then close at around 17:00 GMT.

The US markets then open at 13:00 GMT, this session is called the North American session, or New York session, and lasts until 22:00 GMT. In addition to the US, however, markets are also open at this time in countries such as Canada, Mexico and South America.

Be aware of time zones and time changes

To make matters worse, many countries change their clocks to daylight saving time in the summer and adjust their trading hours accordingly (from GMT+2 to GMT+3). And since this time shift doesn't happen all over the world at once, it can cause a little confusion among traders. We have written in more detail about what this can mean for traders and the differences in time shifts between continents in this article.

Traders who live outside of Europe also need to be aware that swaps and rollovers, for example, may count in their time zone during the current trading day (not at the turn of the calendar day) and need to adjust their trading style accordingly.

When to trade?

From the above, it is clearly seen that it is indeed possible to trade on forex throughout the 24 hours, but the trading volumes for each currency pair are far from being the same. This depends on both the opening hours of the individual markets and the individual currencies traded within the currency pairs.

Clearly, the lowest liquidity in the markets can be seen when the US markets close and trading takes place only within the Asian session, or a few hours before the European markets open. In addition, the most important macroeconomic reports are not published as often at this time, so price movements for individual currency pairs are generally less pronounced (but this may suit some).

The highest liquidity growth, and also the highest price movements on individual pairs, is then seen at the opening of individual exchanges, when there is also an overlap in trading sessions. Thus, the highest liquidity in the markets is when the markets in America open. As much as 70% of all trading takes place when the markets in Europe and the US are open (Europe - USA overlap). The most traded currencies, the euro and the US dollar, are traded at this time. It is the best time to trade majors pairs that contain the US dollar or cross pairs with the euro. At the same time, most important macro data is published at this time, which in turn supports price movements in the markets.

There is also a significant increase in liquidity at the time of the opening of the European markets, when the Asian and European sessions overlap. Again, it is advisable to open pairs with the euro or the Japanese yen at that time. A noticeable increase in volumes, especially for pairs with currencies such as AUD, NZD or JPY, occurs at the opening of the Tokyo Stock Exchange, when the Sydney and Tokyo sessions overlap.

Forex trading thus gives traders countless opportunities throughout the day to profit on individual currency pairs, but the ideal time to enter can vary significantly from currency pair to currency pair. Keep this in mind when fine-tuning your strategy and when choosing the currency pair that best suits your trading style. Trade safe!