There are specific times to trade that can be more profitable than others. This is true no matter which market you’re beginning to trade, whether it’s the NYSE or forex. But with forex, the guidelines are more clear-cut. Trading tends to be the most favorable when the market is the most active. The higher the volume of traders that are actively trading at the same time, the narrower the trading spreads can become. To understand the trading spread, it is simply the difference between the price you are bidding and the asking price. With a trading spread that is narrow, it means that more of the money you are trading will go to the buyer and seller, rather than to the market maker who is trading a particular currency.
All in all, there are 15 independent foreign currency exchanges around the world. They are available for trading five days a week, beginning with Monday and going through Friday. Each exchange has different trading hours. Even though they are all working independently, they are still trading with the same currencies. Forex can be narrowed down to the four most important markets. The major foreign currency markets are New York, London, Tokyo and Singapore. Here are those opening times:
New York: 8am until 5pm
London: 3am until 12pm (noon)
Tokyo: 7pm until 4am
Singapore: 3pm until 12am (midnight)
Using the Opening Times
Going by the opening hours listed above, it is advisable to find markets that overlap with one another. If there are two markets open at the same time, as when the opening and closing hours overlap, there will be a larger number of traders buying and selling currencies. Keep in mind that if there are bids and asks going on in one of the forex markets, they will immediately be reflected in the bids and asks in other exchanges that are open concurrently. This is what can reduce the market spread while increasing volatility. That being said, the absolute best trading time is when New York and London exchanges overlap. This happens from 8am until noon, and those two centers are responsible for more than half of all trades that go on in the 15 international exchanges. On the other hand, you probably would not want to choose the 5pm till 6pm time slot, since the only major exchange open at that hour is in Singapore. The Singapore exchange accounts for less than 10% of all forex trading volume. The other factor to watch for is any sort of political, military or financial crisis going on in the world. In that case, all bets are off as volatility and trading volume would spike, making it a great time to jump in.
Weighing Volatility Against Risk
While a volatile market can be rewarding, keep in mind that risk is also increased. Investors might shy away from volatility, but for traders the increased volume of trading can result in higher chances for profit. Study the market, choose your favored trading times and go with the flow!