When Is The Best Time Of The Day To Trade Forex?

W

hen is the rush hour in your city? You know it by heart, don’t you?

It is right after 17:00 when everybody leaves work to go home. And every time you want to scream where the heck all these people come and go. Best known as “traffic jam o’clock”.

You will ask how this is connected to the trading sessions? 

It is quite simple, liquidity works the same way, an exception is a good thing for traders. It is the highest when there are more people participating in the markets. 

You could suggest that this happens during the overlap between two of the sessions, either between Tokyo-London overlap or London-New York overlap. 

But only one of them has a really high volume of liquidity. 

Tokyo – London Overlap

Liquidity during this session is pretty low and stays relatively quiet during the overlap.

It can become a really boring time for you as a trader. You start wondering if all day will be like that. 

But it won’t. That’s why it is good to prepare some potential trades that you will take in the next two sessions. 

The only exciting thing that can occur is the changes in JPY, which can be traded heavily during this period. 

London – New York Overlap

The London session has the highest trading volume and the most active currencies are the USD, EUR, and GBP. It is heavily centred around London, the traditional centre of forex markets.

The USA session has the second-heaviest volume and the most active currencies are the USD, EUR, JPY, GBP, and AUD. It is centred around New York, although includes other U.S. trading centres like Boston, Philadelphia, and (mostly) Chicago.

The best hours for trading are when London and the U.S. sessions overlap. You usually get the most participants, and hence strongest price moves and fairest trade execution.

However, don’t make the mistake of thinking that each currency trades heaviest in its local time zones. Instead, they trade most heavily in the most liquid markets, during the London and New York sessions.

According to the latest data the liquidity is at an optimum level around 10 am and 3 pm London time (10 am NY time).

These few hours are the busiest time of day, as traders from the two largest financial centres (London and New York) begin getting in.

Once the news reports from the U.S. and Canada are released, you can see some really big movements in the market. 

When the European session establishes some trends for the day, we could see the trend continue, as U.S. traders decide to come through and establish their positions.

The new star on the horizon is called WM/Refinitiv Spot Benchmark Rate, which is determined during the overlap. The rate is set at 4 pm London time, and also known as the “London fix”.

A currency “fixing” means that some of the currencies that are used for commercial transactions are fixed at a set time each day, which serves as a daily reference point. 

This set rate is based on the transactions that are made in the interbank market in exactly 30 sec before and after 4 pm (1minute in total).

Banks and other financial institutions use this daily rate to set their currency exchange rates, which in turn determine the prices used in corporate foreign exchange transactions.

This daily fix may provoke a brief period (15 to 30 minutes before 4 pm) of fluctuations in the exchange rates and it disappears immediately at 4 pm.

Do you already know what time during the day is the best to trade, but is every day the same? No. In the next lesson, you will get to know which day brings higher liquidity and movement on the market.

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