Forex, or foreign exchange, is the market where currencies are traded. Forex is the largest and most liquid financial market in the world, with an average daily trading volume of over $6 trillion¹. Forex operates 24 hours a day, five days a week, across multiple time zones and regions, such as London, New York, Tokyo, and Sydney. Forex is decentralized, meaning that there is no central authority or exchange that controls or regulates the market. Instead, forex transactions are conducted over-the-counter (OTC), through a network of banks, brokers, dealers, and traders.
The main participants in the forex market are central banks, commercial banks, hedge funds, corporations, and retail traders. The main purpose of the forex market is to facilitate international trade and investment, by allowing businesses and individuals to exchange one currency for another at an agreed-upon rate. For example, if a U.S. company wants to buy goods from a German supplier, it needs to convert its U.S. dollars (USD) into euros (EUR) to pay for the transaction. The forex market enables this conversion to take place.
The main products traded in the forex market are currency pairs, which are the combinations of two currencies that are exchanged. For example, EUR/USD is the currency pair that represents the exchange rate of the euro against the U.S. dollar. There are three types of currency pairs: major, minor, and exotic. Major currency pairs are the ones that involve the U.S. dollar and the other seven most traded currencies in the world, such as EUR, GBP, JPY, CHF, CAD, AUD, and NZD. Minor currency pairs are the ones that do not involve the U.S. dollar, but still include one of the major currencies, such as EUR/GBP, GBP/JPY, or AUD/NZD. Exotic currency pairs are the ones that involve one of the major currencies and one of the less traded or emerging market currencies, such as USD/ZAR, EUR/TRY, or GBP/MXN.
The main factors that influence the exchange rates of currency pairs are the supply and demand of the currencies, which are affected by various economic, political, and social events, such as interest rates, inflation, trade balance, GDP, elections, wars, and natural disasters. Forex traders use fundamental analysis, technical analysis, and sentiment analysis to analyze these factors and predict the future movements of the currency pairs. Forex traders also use leverage, which is the use of borrowed funds to increase the potential returns and risks of their trades. Forex traders can use various strategies, such as scalping, day trading, swing trading, position trading, and carry trading, depending on their time horizon, risk appetite, and trading style.
But when is the best time to trade forex? The best time to trade forex is when the market is most active – this is when you’ll get the narrowest spreads and best chance of executing a trade at your desired levels. The forex market is usually most active when the market hours overlap between sessions, as this is when the number of traders buying and selling each currency increases. The overlap windows for exchanges are:
- 1 pm to 4 pm (GMT) when both New York and London exchanges are open
- 12 am to 7 am (GMT) when both Tokyo and Sydney exchanges are open
- 8 am to 9 am (GMT) when both Tokyo and London exchanges are open
The first of these windows, between New York and London, is possibly the most important. These two centres account for over half of all forex trades. By looking at the average pip movement of the major currency pairs during each forex trading session, we can see that the London session has the most movement. PAIR TOKYO LONDON NEW YORK EUR/USD 76 114 92 GBP/USD 92 127 99 USD/JPY 51 66 59 AUD/USD 77 83 81 NZD/USD 62 72 70 USD/CAD 57 96 96 USD/CHF 67 102 83 EUR/JPY 102 129 107 GBP/JPY 118 151 132 AUD/JPY 98 107 103 EUR/GBP 78 61 47 EUR/CHF 79 109 84
Source: 2
As we can see, the London session has the highest average pip movement for most of the major currency pairs, followed by the New York session and the Tokyo session. This means that the London session offers the most volatility and liquidity for forex traders, especially for those who trade the EUR/USD, GBP/USD, and USD/JPY pairs. The New York session also offers good opportunities for forex traders, especially for those who trade the USD/CAD and USD/CHF pairs. The Tokyo session, on the other hand, offers less volatility and liquidity for forex traders, especially for those who trade the exotic currency pairs.
However, the best time to trade forex also depends on your personal preferences, goals, and risk tolerance. Some traders may prefer to trade during the most active and volatile sessions, while others may prefer to trade during the less active and volatile sessions. Some traders may prefer to trade during the news releases and economic events, while others may prefer to avoid them. Some traders may prefer to trade during the day, while others may prefer to trade during the night. The best time to trade forex is ultimately the time that suits your trading style and strategy.
Conclusion
Forex is the market where currencies are traded. Forex is the largest and most liquid financial market in the world, with an average daily trading volume of over $6 trillion¹. Forex operates 24 hours a day, five days a week, across multiple time zones and regions, such as London, New York, Tokyo, and Sydney. Forex is decentralized, meaning that there is no central authority or exchange that controls or regulates the market. Instead, forex transactions are conducted over-the-counter (OTC), through a network of banks, brokers, dealers, and traders.
The best time to trade forex is when the market is most active – this is when you’ll get the narrowest spreads and best chance of executing a trade at your desired levels. The forex market is usually most active when the market hours overlap between sessions, as this is when the number of traders buying and selling each currency increases. The overlap windows for exchanges are:
- 1 pm to 4 pm (GMT) when both New York and London exchanges are open
- 12 am to 7 am (GMT) when both Tokyo and Sydney exchanges are open
- 8 am to 9 am (GMT) when both Tokyo and London exchanges are open
The first of these windows, between New York and London, is possibly the most important. These two centres account for over half of all forex trades. By looking at the average pip movement of the major currency pairs during each forex trading session, we can see that the London session has the most movement. However, the best time to trade forex also depends on your personal preferences, goals, and risk tolerance. The best time to trade forex is ultimately the time that suits your trading style and strategy.
