Forex, which is short for the foreign exchange market, is the world’s largest public trading market. Any seasoned trader will tell you to truly master the art of trading with all its immeasurable depth, a trader must, at one point, also get the hang of forex. Forex is a global market on which fiat currencies are traded. That is to say, currencies that are nationally backed by their own respective countries. For example, you could buy a certain amount of Euros with the opposite currency being the US Dollar, wagering that in a set timetable, the value of the Euro will go up against the Dollar, and you will make a profit by selling it later.
That is a basic definition of the Forex market, which is a massive and encompassing market that holds hundreds of currencies, a myriad of secrets, and many skills to master. However, one of the points of agreement in the larger forex trading community seems to be the importance of time. Forex is inherently dependent on the currencies of different countries that, in turn, also have their own respective time zones.
The debate on which ones are truly the best month to trade forex rages on among traders. There are many different theories on when it is best to trade forex in general, as well as theories regarding when it is best to trade specific currency pairs in general. In this article, we will go over why time matters in forex, and then we will highlight the best time and best months to trade forex and more.
If you’re interested in using bots to automate your forex trading check out our other article: What are Forex trading bots? + 6 Best Forex Trading Robots 2022
Why Does Time Matter in Forex?
While you can access the forex market at any time you wish, there is little doubt that certain timeframes simply work better to your advantage. Forex is dominated by prominent currencies that are represented by countries. So, for example, if you want to trade the Japanese Yen, it is advised to trade in the hours that Japanese traders are more active. During this time, the volatility of the otherwise rather stable forex market is increased, and chances of making a meaningful profit increase in your favor.
This goes beyond hours. As the time frame expands, we can also see that certain dates in the calendar that correspond to different events, for example, a political event that can impact the price of a certain currency, also play a major role in forex trading. This means that there are not only proper hours to trade but also proper days in a week as well as proper weeks in a month, and finally, proper months during a calendar year.
The understanding of when is a good time to trade is also a subject of debate, and many have disagreeing opinions about this subject based on their own personal trading preference and strategy. For example, a trader who prefers safer strategies usually abstains from trading in volatile time windows. However, the metric that will be used in highlighting the best trading times in this article will be based on the general consensus and the strategy that has worked for the larger part of the trading community.
Welcome to timetable general. Here we will go over the exact time of day, week, and year to trade in forex generally. This section does not include timing preferences for specific currency trading pairs. Instead, it focuses on giving you an overall understanding of exactly when it is best for you to trade in general. The forex market is divided into international sessions. For example, during daytime in the East Pacific, Asian and Tokyo sessions are in place, and that is a prime time to trade currencies of the region.
We are looking to optimize our trading strategy to include a good general principle of when to trade regardless of these sessions. Of course, we will get to specific trading pairs down the line as well.
Best Time of Day to Trade Forex
When looking at when to trade during the daytime, it is important to consider when a week officially begins in the forex market. That will be at 5 p.m EST every Sunday. The trading week ends on Fridays at 5 p.m. Since important market sessions like Sydney, Tokyo, London, and New York have very different operating hours, we are going to be optimizing our trading hours to match their overlaps. Going by the UTC timezone (also known as GMT), we can see that the overlap between these four markets never happens. Instead, they overlap in pairs. Sydney overlaps with the Tokyo session, and New York overlaps with London. So the best case scenario is to pick a time that includes the overlap between these two market pairs.
Sydney-Tokyo Overlap Hours
The Sydney session starts at 10 p.m UTC, and the Tokyo session starts at 12 a.m UTC. They each close at 7 and 9 a.m UTC, respectively. That means for traders looking to trade currencies from this corner of the world, the best time would be from 12 a.m UTC to 7 a.m UTC.
London-New York Overlap Hours
However, the overlap trading volume for the aforementioned market is rather low. So if you want to really amp up your trading hour optimization, you can instead exploit the overlap between the London and New York sessions, which happens every day from 1 p.m UTC to 5 p.m UTC.
Best Days of the Week to Trade Forex
Now that we’ve sorted the optimum hours to trade in each day let’s complement that with figuring out what are the best days of the week to trade forex. This way we can enhance our previously figured hours and use them on these days to make the potential for more profits. The general rule of thumb here is to trade during midweek days as opposed to weekends. However, this is a general rule, and there are exceptions to this matter that we will explain below.
The reason weekends are not optimal days for trading forex is simple. Not only are some markets’ overlap particularly weak, but the time difference also curtails the potential for greater economic activity. For example, when it is Monday morning in Australia, Europe is still stuck on Sunday, and most people are fast asleep. Markets are indeed open, and sessions do overlap, but the volatility is quite low, and there is not much trading going on. Starting your trade on a Sunday can give you the wrong impression of the market mood and set you up for failure for the whole week.
The exception to this rule is weekends when important political events take place. For example, a certain important election or announcement can suddenly rock the market for a specific currency. So be on the lookout for important events on the weekends, but otherwise, steer clear from trading during them.
Moving on from Sunday, the first half of Monday is also going to be a little bit sluggish. But as we drift further into the second half of Monday on the UTC timezone, we can finally see the volatility building up, and the chances of making successful trades begin to build up. On Tuesday, we can already see a massive average trade volume increase of 150% compared to the day before, and this stat exponentially continues to grow for each day of the week before it starts to decrease on Friday, and from there, we once again descend to the weekend slope.
Suppose we are going to be spot on with our estimation that Tuesday and Thursday showcase the most volatility during the week. Then things cool down a bit on Wednesday. This is because many traders who start their trades don’t bother to carry on all night into the next few days. But after this minor cooldown, things pick back their pace on Thursday, which is another great day for trading. As we said, Friday is when things begin to calm down towards the weekend. But if you know your way around, there are still good trading pairs to test on Fridays too. On the weekends, resting and observing is the main principle.
Best Months To Trade Forex
In general, specific months as individual units of time don’t carry general importance for trading in the forex market. Instead, it’s better to look at them as groups of months that make a “period” more desirable for trading during a year. This is yet another general rule, however, and you can expect certain months in certain years to be of crucial importance due to political shenanigans. The calendar is divided into three phases by most traders. These phases are the initial high volatile phase, the cooldown phase, and finally, the market’s second volatile phase.
Volatile Phase 1: New Year’s Boom
Every new year starts with January. When traders return from their new year vacations and summer holidays, combined with the new year spirit, they contribute to what we may call a “new year’s boom.” This period is when the market is the strongest throughout the year. It starts with January and lasts for roughly five months till we get to May. May is still a good month to trade, but things start to cool down a bit in the second half, which is the preliminary stages of what we may call the “Summer Snooze.”
Cooldown Phase: Summer Snooze
It is well understood that summer is a no-go for most veteran forex traders. There is even a saying in the old and historical London trading floor that goes:” Sell in May and go away!”. There is no specific reason why Summertime is usually a snoozefest in the forex market. It mostly comes down to the fact that many people go on holiday. Also, it is understood that the new year’s boom hype usually fails to carry most traders through the summer. August is shown to be the worst time to trade forex in a calendar year. So be careful not to trade in August even if you are going to otherwise be trading during the summer snooze.
Volatile Phase 2: Steadfast Spring
Beginning with September, the market regains its lost strength. This is the second volatile phase of the market. It would be quite a convenient trading window if you didn’t make the most out of volatile phase 1. Despite this, there are a few things to note while trading in volatile phase 2. First, it is not as volatile as the first phase. And second, this three-month period from September to November is full of globally celebrated holidays. These holidays usually act as major obstacles that suddenly cause the market to slow down and make unexpected swings. So, by all means, do trade during this second volatile phase. Just remember to also look out for these holidays to minimize any potential unexpected losses.
Opportunities: Is Monday a good day to trade forex?
While we did briefly mention Monday earlier, many beginner traders see Monday as a breakaway point during the week since it marks the end of the weekend. So here we will go over trading on Monday with some more depth. Generally, Monday is not a bad day to trade per se. However, it is the least volatile of the weekdays. Even Wednesday, which is the cooldown day after Tuesday’s market boom, maintains a higher level of volatility.
With that said, the second half of Monday in the UTC timezone is when the initial surge in volatility and market overlap really begins. We said that Tuesday has almost 150% more volatility compared to Monday. Well, that increase doesn’t magically appear out of nowhere. It starts late Monday. So, all in all, Monday is a high-risk, high-reward trading day that veteran traders can capitalize on. But it is best for beginners to not make major or risky trades on Mondays until they have more experience.
Give yourself a better chance at the Forex market by hosting your trading platform right next to your broker.Get a Forex VPS
Couples to Remember: Best Currency Pairs to Trade at Night?
Apart from the obvious statement that you should look at your own strategy and location before making a move for nighttime trading, the decision is ultimately determined by a trader’s risk tolerance and strategy. Trading forex at night is a great way to make both short-term and long-term profits. To determine the best nighttime trading pairs, we will again assume that UTC is your go-to timezone.
If you are a beginner, it is best to trade major pairs at night. Because they do not involve an Asian currency, they are less active and volatile at night. As a result, for a beginner, trading in pairs such as GBP/USD or USD/CAD makes more sense. Even experienced traders can use these currency pairs for night trading by employing scalping strategies. Any strategy that works well with low volatility – scalping, automated trading programs, and so on – is appropriate for nighttime trading.
Night trading is favored by strategies that work better with less volatility, such as scalping or automated trading programs. If you want volatility, the best cross-pairs to choose are those that involve an Asian or Oceanic currency. In this case, currency pairs such as the AUD/NZD, AUD/JPY, or NZD/JPY are best suited for night trading.
Learning from the Elites: What Time Do Banks Trade Forex?
Where banks and common traders differ doesn’t have to do much with when they trade as opposed to how they trade. In general different trading sections of banks also follow the same principal rules as we have already highlighted. Many beginner traders who have recently realized the importance of timing in forex trading tend to think that the main reason behind the success of banks in forex trading is their timing.
However, this is false as most banks indeed follow the same timing patterns as everyone else. Another common misconception is that bankers sit throughout the market and overlap hours to make their trades. This is again false as bankers usually have access to better technical analysis tools as well as better fundamental sources of information.
They spend very little time behind screens or in exchanges placing orders and such. They instead simply buy or sell at the beginning of the overlap hours and don’t spend much more time on it. So in principle, they follow the same rules as the rest of us, that is unless they have some insider information that the rest of us don’t have. Then we can expect to sometimes trade outside of conventional timeframes.
Jack of All Trades: Best Times to Trade Proven Currency Pairs
Just like any other massive market that offers the population a huge set of choices, the forex market also features some commodities that are proven to be better at trading against each other. These commodity or currency pairs are often called “Proven” currency pairs.
For whatever financial or political reason, these currencies have decent compatibility with each other, and the volatility between them can better be exploited to earn the trader more profits. Just like the principal rules that we already outlined, these proven pairs also have their own best trading hours. So here, we will go over four of the most well-known and reputable proverb trading pairs and highlight the best time to trade them.
Best Time to Trade AUD/USD
The Australian Dollar and the US Dollar have long acted as a proven fiat currency trading pair. The main factors that influence the reliability of this pair are their interest rate fluctuations as well as the trade relations between Australia and the United States. This specific pair of currencies has shown strength throughout the day as their respective sessions don’t actually overlap, and their reliability instead comes from political and economic reasons. Still, hours between 7 p.m and 4;30 a.m have historically shown higher volatility for this pair.
Best time to Trade USD/JPY
Japan is another country that not only has an incredibly powerful currency at its disposal, but their cordial relations with the United States, as well as the huge volumes of trade between the two nations, have once again made the USD/JPY pair a favorite of many forex traders. Like the AUD/USD pair, the USD/JPY pair also does not rely on session overlapping to be a reliable trading pair. This again makes it a flexible pair that you can trade at any hour with relative safety. But if you’re looking to maximize your profit potential, the three-hour window between 12 p.m and 3 p.m. Has historically provided the highest level of volatility for this specific pair.
Best Time to Trade EUR/USD
The continental currency of the European Union needs no introduction, and everyone knows the power that is shared between the US Dollar and the European Euro. Once again, this pair can also be traded at any given hour without risk. However, this pair is unique in the fact that it has two separate volatility surges during the day. First, we have the session overlap between New York and London that lasts from 1 p.m UTC to 5 p.m UTC. However, the popularity of the Euro, coupled with the fact that some traders use delayed indicators, makes a separate volatility peak appear at around 8 p.m that lasts until 10 p.m.
Best Time to Trade GBP/USD
GBP/USD traders are well-known to be all-nighters. This makes this trading pair highly flexible. Not only can you use the previously mentioned overlap between New York and London that lasts from 1 p.m UTC to 5 p.m UTC, but another rather long window of opportunity also appears from 6 a.m to 4 p.m. This ten-hour volatility window is the largest of its kind in the top four proven trading currency pairs that we have covered. For this reason, the GBP/USD pair is almost universally known as one of the most profitable currency trading pairs in the forex market.
The forex market is a dense and deep market. Getting the timing right is only one of the many facets of the market that a trader needs to master in order to be successful. With the growing popularity of the forex market among retail traders, maintaining a technological edge with your used hardware has also become a factor in your success.
Many traders lose out on profitable trades and opportunities or have their orders placed too late or not at all just because of where they live or implementing badintraday strategies. For this reason, having a low latency with prominent centers of forex trade such as Sydney, Tokyo, London, and New York is also important. You can find out more about what latency is and how it can make or break your trading here.
This is where the VPS tech comes in. You can use Cloudzy to get your own tailor-made custom Virtual Private Server that allows you to connect to another powerful computer that is close to these centers of trade and enjoy a high-frequency performance of its hardware as well as its low latency to trade in the forex market with greater ease. Get your own custom Forex VPS package on Cloudzy, and don’t miss a beat on the market!
What Time is the Forex Market More Active Globally?
Taking into account the fact that the four main forex trading sessions in New York, Sydney, London and Tokyo never overlap at the same time, the answer to this question is rather hard. But overall, it seems that in the UTC timezone, the hours between 8 a.m to 12 p.m have the highest average volume across all currency pairs.
Is Forex Trading At Night Profitable?
Yes. That, however, does not mean that you can go ahead and generate profits by virtue of trading at nighttime. But if you know your way around the market at nighttime and you know what currencies trade better at nighttime, trading in the dark hours can be profitable.
What Currency Pairs are the Most Profitable?
By sheer market size, EUR/USD is the largest currency pair, and it holds more than 25% of the entire market. So that pair is a must-have in any forex trader’s portfolio. Following that, USD/JPY features incredibly strong base support and can be considered a safe haven for beginner traders. AUD/USD and GBP/USD are other pairs that are reputable and can make traders a good chunk of profit.