A Better Understanding of
Forex Market Hours
The fact that the Foreign Exchange market is open 24 hours a day makes it highly accessible and famous among the traders across the globe. These Forex market hours provides several trading opportunities and make it easy for the retail and institutional participants to operate in the market.
Technically, for the retail traders, the Forex market is open 24 hours from Monday to Friday. However, some prominent participants, like Central Banks, Financial institutions, and Hedge funds, get 24/7 access to the market.
The FX market close at 5 p.m EST on Friday and reopen at 5 p.m EST on Sunday. Most of the time, there is not much difference between Friday's closing price and Sunday's open price. However, sometime there could be a significant gap between the close and open price that often causes a change in the price direction.
The Most Important Forex Market Hours
The FX market is decentralized and traded over the counter across multiple worldwide ECNs(Electronic Communication Network). They consist of around 15 independent foreign exchanges. However, only four of these exchanges are known to the majority of traders.
Sydney, Tokyo, London, and New York are the four primary trading sessions in Forex. Below is an image demonstrating the opening and closing time for each session.
These are the forex market hours when most significant participants, such as banks, financial institutions, and market dealers, operate in the market. Usually, a trading day starts with Sydney and ends at the New York session. In winter, all the trading sessions are shifted one hour back due to daylight savings.
The six of the most traded currencies (AUD, CAD, CHF, EUR, JPY, and NZD) paired with the USD remain influenced by different Forex market hours for apparent reason. Usually, the cheapest spreads are offered by the brokers on each currency within their respective sessions.
How Spreads Are Affected by Forex Market Hours
The spreads can be high, low or normal during the different market hours. During the busiest market hours, spreads are often tighter as there is a more demand between the buyers and sellers.
FX brokers and liquidity providers can match the increased demand with adequate supply so they have to provide competetive spreads to attract more traders and participants. Some brokers have been providing as low as 0.1 pips spreads for the EURUSD.
The spreads are wider on exotic pairs due to fewer market participants and less liquidity. Generally, when the market is quiter, spreads increase across all the pairs.
An interesting phenomenon occurs at the start of the Sydney session when the spreads get wider dramatically for up to an hour. This is commonly known as the rollover fee. Rollover is the interest that is either paid or earned by a trader to hold an overnight position.
How The Market Plays Out Like A Symphony
It is a well-known fact that financial markets never move in a straight line. Markets move with a various velocity at different times of the day. There is an interesting analogy that compares the market with a symphony score. There are instances where the market rhythm is fairly smooth, and then there are instances where the rhythm is intense before it settles back to normal again.
Forex traders pay close attention to the sessions overlaps. Usually, the market becomes highly volatile during these market hours where two or more trading session overlaps to each other. London-New York overlaps sessions (8 a.m EST to 12 p.m EST) attract a large number of trading orders and usually the busiest time of the day for Forex traders.
On the other hand, a day trader in Australia may actively trade during the Sydney and Tokyo sessions to ride the ongoing momentum. Based on Forex market hours, a trader may choose to trade the AUD, NZD, or JPY. Similarly, European traders can take advantage of the London session to trade the Euro based pairs like EURUSD, EURCAD, EURAUD and EURJPY.
The Average True Range(ATR) is Influenced by Forex Market Hours
The market volatility is one of the essential factors for day traders. Also, some traders aim to scalp the market during high-impact news that usually produces large price movements in a short period.
A few high-impact news are announced during the start of a new market session. For example, The Non-Farm Payroll (NFP) is always released on the first Friday of the month during the beginning of the New York session (8 a.m EST). On some rare occasions when First Friday is also the first day of the month, the NFP is released on the second Friday of the month.
The below image shows the differences in the Average True Range (ATR) on GBPUSD M15 during different market hours. Interestingly, it also includes a period of NFP release, which clearly shows a sharp increase in market volatility.
During the NFP release, the volatility in market increases due to the highly speculative interest of such high impact news. Events like NFP provide an excellent opportunity for traders to make some profit. However, the widening of spreads is one of the main disadvantages during such market hours.
The Point Of It All
For swing traders or positional traders, Forex market hours and sessions don't play an essential role as they do not affect their trading strategies. However, swing traders should also track their strategies daily as there are certain days in a week, which provides more volatility compared to other days. Various studies show that Tuesday, Wednesday, and Thursday are generally more volatile than other days of the week.
The FX has the impression of a 24 hours global market for more than a decade. New traders usually don't interpret the FX market based on different hours and sessions. New traders should first learn about the Forex market hours and sessions. It's a fact that FX is a 24-hour open market, but that doesn't necessarily equate to profitable trading opportunities throughout the day.