It’s a commonly repeated adage, but one that’s nevertheless not far from the truth: the forex market never sleeps. The busiest and most liquid market in human history — where it’s commonplace for trillions of dollars’ worth of currency to change hands in a single day — foreign exchange trades are constantly taking place throughout the business hours of all of the world’s financial centres each and every working week.
Due to the differing global time zones, this has effectively led to the development of a vibrant 24-hour market that’s always buzzing with activity in at least one part of the world at any given time!
But do certain times of day present more opportunities than others? This is an astute (if quite complex) question that many new investors find themselves asking — so to set about answering it, let’s first take a look at how the forex market operates in more detail.
How Does the 24-Hour Forex Market Work?
Thanks to advances in financial technology over the last few decades, the vast majority of foreign currency exchanges are now conducted electronically via an online channel termed the ‘interbank market’.
This virtual trading network is anchored by a number of key financial centres located in major cities around the world, which enables trades to be executed 24 hours per day, Monday through Friday each week.
The continuous cycle of forex activity is sometimes described as adhering to a three-session system, comprising (in chronological order) the Tokyo, London and New York sessions; the fourth primary trading hub in Sydney, Australia, also has its main trading hours overlapping these time windows.
These sessions take place in sequence throughout the day as a result of the global time difference, and traders should take particular note of the few times each day when more than one session is occurring simultaneously (ie. while one is finishing up as the other gets going) as these intervals tend to be characterised by higher trading volumes and greater volatility — and, ultimately, speedier changes to buying and selling prices.
Intriguingly, investors should be aware that each session and their respective overlaps have their own unique characteristics, which we’ll discuss in more detail below.
Further reading: https://admiralmarkets.com/education/articles/forex-strategy/how-does-the-forex-market-trade-24-hours-a-day?regulator=fca
Sydney/Tokyo Overlap (07:00–09:00 GMT)
Sydney has gained a reputation as the smallest of the primary forex hubs, but it’s still notable for being the first market to open after the weekend trading halt due to Australia’s position in a preceding time zone to the others. Therefore, it is still worth observing if and when possible in order to identify any early trends that could cross over into later sessions.
Market behaviour during this period is typically not as volatile as in the later London/New York session, as there is less direct pressure stemming from both the US dollar and Euro (the two most commonly traded currencies); nevertheless, this window usually displays a broad detectable increase in pip movement as trading action across the Asia-Pacific region picks up momentum.
This early session is primarily useful for trading the respective currencies of the countries most active at this time — such as Japanese Yen (JPY) and Australian Dollar (AUD) — and, to a lesser extent, the Euro as European speculators gradually begin to wake up and resume their activities.
It’s worth re-iterating at this point that the Tokyo session sometimes sets the tone for the rest of the day — so again, it’s a good indicator of emerging short-term trends. On the other hand, this is also when the consolidation of any big moves that took place during the previous day’s London and New York sessions really begin to show.
Further reading: https://www.fxempire.com/education/article/how-to-trade-forex-during-the-asian-trading-hours-the-best-pairs-and-strategy-478603
Tokyo/London Overlap (08:00–09:00 GMT)
Perhaps counterintuitively — given that the Japanese Yen (JPY) is the world’s third-most widely traded currency, combined with London’s reputation as a hotbed of global financial activity — this brief window sees comparatively little forex action compared with later in the day.
This is largely because the majority of US investors will be fast asleep at this time, while most European traders are still waking up and haven’t fully got their bearings yet. Consequently, there tends to be little movement in general during the Asian session and eager speculators hoping for high liquidity would be better served using this time to identify trades to make later in the day (once the trading industry has picked up more steam).
Despite this drawback, the Tokyo-dominated early hours of the morning are worth paying attention to for USD/JPY trends — in part due to the Bank of Japan’s famously hands-on approach to interest rates and other monetary considerations that could quickly affect global investor sentiment surrounding the Yen once the news spreads.
Further reading: https://www.dailyfx.com/education/why-trade-forex/trading-the-london-session.html
London/New York Overlap: (12:00–16:00 GMT)
The point at which the trading days of the Western world’s two largest financial hubs coincide, these hours are when global trading volumes tend to hit their peak as investment activities are in full swing on both sides of the Atlantic.
Also generally regarded as the best time to trade overall due to the increased volatility and liquidity experienced across much of the forex sector, research suggests that as much as 70% of all trade movement occurs within this timeframe! This is perhaps unsurprising, as the US dollar, Euro and British pound comprise three of the four most commonly traded currencies worldwide.
During this critical time, the market is known to be particularly sensitive to morning news reports and major financial announcements coming out of the US — for whom the crossover begins bright and early at 8am — as well as any salient ‘late’ news breaking in the UK and Eurozone.
It is also common for US-based forex speculators to begin ‘catching up’ with any market trends and happenings that have taken place early in the European session whilst they were (presumably) sleeping, with investors opening and closing positions in response to the news; equally, it’s worth bracing for any last-minute moves as the European markets close for the night around lunchtime in America.
Further reading: https://fxtalk.com/forex-trading-course/forex-trading-strategy-london-new-york-breakout/
Trading Session Overlaps: A Brief Summary
As we can see above, each session has its own characteristics, meaning intrepid traders can find something at almost any time of day to help them identify new potential trends or plan their trades more effectively.
However, due to the sheer volume of trades and the spike in market liquidity it entails (not to mention the sociable hours, in the case of European traders), most traders will find the early afternoon London/New York overlap the most beneficial time to open new positions and execute any big moves they have prepared.
That’s not to say speculators should resign themselves to sitting on their hands for the other 20ish hours a day — one of the beauties of forex trading is there’s no rulebook.
The market never completely shuts down, and keeping a watchful eye at quieter periods could prove lucrative if you manage to catch a trend others have missed by having already clocked off for the day, or by staying in bed that bit too long!
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The content contained herein does not construe any form of advice and the user must not take this as such. We do not accept any liability for the direct or indirect usage of the content held in this article. We strongly advise that you obtain independent financial, legal and tax advice before proceeding with any currency or spot metals trades.
