Active trading markets are almost always better for traders, whether you are trading on the Forex, the NYSE or any other financial trading market. But for Forex traders, there's another good reason for trading when the market is most active: As a result of the nature of the Foreign Exchange's four major exchanges -- New York, London, Singapore, and Tokyo -- when more than one exchange is open, not only does trading volume increase, but volatility significantly increases as well. Without volatility, prices remain constant and trading cannot be profitable.
With volatility comes risk, but also opportunity. The Forex has fifteen independent exchanges worldwide. All are open five days weekly, from Monday through Friday. Each exchange has unique trading hours, but from a trading perspective, the four most important exchanges and their hours are the following all times are Eastern Standard Time:. While each exchange is independent of the other, they are all trading the same currencies. This means that when two of these four large exchanges are open, the number of traders actively buying and selling currencies increases significantly.
Bids and asks on one Forex exchange are immediately reflected in the bids and asks on any other open exchange, which both reduces market spreads and increases volatility.
When you look at the exchange hours listed above, it becomes clear that trading hours on major exchanges occur in two markets simultaneously from:. These four overlaps are normally the three best times to trade. Of these, the most favorable trading time is the 8 AM to noon overlap when both New York and London exchanges are open. These two trading centers account for more than 50 percent of all trades on all 15 exchanges worldwide.
Special situations can arise, however, that can make any hour of the day or night a favorable trading time. Normally, for example, from 5 PM to 6 PM EST is not a promising time to trade; the only major open exchange is the Singapore exchange, which accounts for less than 10 percent of annual Forex trading volume. If, however, there was a political or military crisis anywhere in the world that developed during this hour, volatility and trading volume would predictably spike in response, making this a very favorable time to trade.
If you're just beginning to trade on the Forex, it's a good idea to proceed cautiously. Currency trades are highly leveraged -- sometimes as much as 1, to 1. This makes the idea of a big win appealing, but also means you can lose most of your money on a single trade.
It's often a good idea to open your Forex account at a firm that offers new investors "demo" trading, where the results are tallied but the gains and losses are imaginary. Once you see how you're doing in your demo account, you'll know better how to proceed.
The Balance does not provide tax, investment, or financial services and advice. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
Updated April 27, The 4 Major Forex Exchanges Active trading markets are almost always better for traders, whether you are trading on the Forex, the NYSE or any other financial trading market.More...