Skip to main content

BEST TIMES OF THE DAY TO TRADE FOREX(16)

 Quick pop quiz! What time of the day are TV ratings highest? If you said during prime time, then you would be correct!

What does this have to do with trading sessions?

Well, just like TV, “ratings” (a.k.a. liquidity) are at their highest when there are more people participating in the markets.

Forex Trading Session Overlaps

So when is the best time to trade forex?

Logically, you would think that this happens during the overlap between the two sessions.

If you thought that way, you’d only be half-right.

Let’s discuss some of the characteristics of the two overlap sessions to see why.

Tokyo – London Overlap

Tokyo-London Overlap

Liquidity during this session is pretty thin for a few reasons. Typically, there isn’t as much movement during the Asian session so, once the afternoon hits, it’s pretty much a snooze fest. Zzzzzz.

With European traders just starting to get into their offices, trading can be boring as liquidity dries up.

This would be an ideal time to take a chill pill, play some putt-putt golf, or look for potential trades to take for the London and New York sessions.

London – New York Overlap

London-New York Overlap

According to the latest data from FXLIQUIDITY, an analytics service for the FX market, liquidity is at an optimum level around 10 am and 3 pm London time (10 am NY time).

This is when the real shebang begins! You can literally hear traders crack their knuckles during this time because they know they have their work cut out for them.


This is the busiest time of day, as traders from the two largest financial centers (London and New York) begin duking it out.

It is during this period where we can see some big moves, especially when news reports from the U.S. and Canada are released.

The markets can also be hit by “late” news coming out of Europe.

If any trends were established during the European session, we could see the trend continue, as U.S. traders decide to jump in and establish their positions after reading up what happened earlier in the day.

Lastly, it’s important to know that it is during this period where the WM/Refinitiv Spot Benchmark Rate is determined.

The rate is set at 4 pm London time, and also known as the “London fix“.

A currency “fixing” is a set time each day when the prices of currencies for commercial transactions are set, or fixed.

Since currency prices fluctuate from second to second, a daily “reference point” is needed.

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.

From a trading standpoint, this daily fix may see a flurry of trading in the market prior (generally 15 to 30 minutes) to the fixing time that abruptly disappears exactly at the fixing time.

Lastly, some European traders may be closing their positions as their day ends, which could lead to some choppy moves right before lunchtime in the U.S.

Choppy Price

Did this content help you? 
Labels:

Popular posts from this blog

WHAT IS MARGIN TRADING(22)

  The biggest appeal that forex trading offers is the ability to trade on  margin . But for many forex traders, “margin” is a foreign concept and one that is often misunderstood. Like Bob. Bob sure knows his fried chicken and mashed potatoes but absolutely has no clue about margin and leverage. Margin trading gives you the ability to enter into positions larger than your account balance. With a little bit of cash, you can open a much bigger trade in the  forex market . And then with just a small change in price moving in your favor, you have the possibility of ending up with massively huge profits. But for most new traders, because they usually don’t know what they’re doing, that’s not what usually happens. More likely, price does move, but it moves  against  them. Like what happened to Bob. Bob was in a trade. He was sure that this trade was going to be a winner so he bet  BIG . All of a sudden, to Bob’s surprise (and shock), he witnessed his trade being a...
Read more

HOW TO AVOID A MARGIN CALL(33)

  Trading on margin   is a way for traders with limited capital to make significant profits (or losses). If you fail to understand the concept of margin or not knowing what to do when faced with a margin call from your broker, you will definitely experience the shock of your trading account blow up. Here are five ways to avoid a margin call. 1. Know WTF a margin call is. Understanding what margin call is and how it works is the first step in knowing how to avoid one. Most new traders want to focus on other details of trading such as technical indicators or chart patterns, but little thought is given to the other important elements such as  margin requirements ,  equity ,  used margin ,  free margin , and margin  levels . If you’re hit with a margin call out of the blue, this usually means you have no clue what causes a margin call and are opening trades without considering margin requirements. If this is you, you are doomed to fail as a trader. Guarant...
Read more

WHAT ARE YOU ACTUALLY TRADING IN FOREX?(34)

As a retail forex trader,  what  are you actually trading? New forex traders might be puzzled about how it’s possible to trade currencies they don’t physically own. They’re also often confused about how it’s possible to sell something before buying it. Let’s revisit a part of the  earlier story  about Batman and Spider-Man: Oh really? Let’s make a bet then. What kind of bet? How will it work? If GBP/USD goes up, I’ll pay YOU the difference between its price right now and whatever the price is when you decide to close the bet. But if GBP/USD goes down, you’ll pay ME the difference. Payouts will be in cash. Also, you can close the bet whenever you want. What do you say? Let’s do it! I’ll take that bet. The conversation above should give you a hint. If you’re not familiar with the story above, this means you haven’t read our earlier lesson on  How Forex Brokers (Kinda) Work   starring Batman and Spider-Man. It’s highly recommended that you read this lesso...
Read more