As the Forex market opens 24hours a day, it is not easy for traders to participate in all of the time zones and respond immediately every time. Therefore, timing is the most essential thing in foreign exchange trading.
To develop the most effective and time-efficient trading strategy, it is crucial to know how active market movements depending on the time zones. Only then you get as many trading opportunities as possible in the time zone you participate in.
In addition to liquidity, the extent of fluctuations in currency pairs also depends mainly on each country’s geopolitical locations and macroeconomic conditions. Thus, by finding out when the currency pair moves the most and when the least, the trader can increase his or her investment efficiency through efficient asset allocation. Let get started!
Asian Market (Tokyo FX Market)
19:00 – 04:00 (Eastern Time)
In Asian markets, foreign exchange trading is mainly carried out in certain financial centres. The Tokyo foreign exchange market, which accounts for a larger portion of the Asian time zone, is followed by Hong Kong and Singapore. Japan’s central bank’s influence in the foreign exchange market is gradually weakening, but the Tokyo foreign exchange market is still one of Asia’s most important foreign exchange markets.
Since this is the first major market opening among Asian markets, many investors use the Tokyo market as a trading momentum and a benchmark for measuring market dynamics in order to establish trading strategies. Sometimes trading in the Tokyo foreign exchange market is inactive. Still, large investment banks and hedge funds are known to operate important stop orders or options in the Asian market.
For risk-taking traders, USD/JPY, GBP/CHF and GBP/JPY are good choices. These currency pairs usually offer attractive opportunities of 90 per cent on average to traders who trade during short periods of time because of their large fluctuations. Foreign investment banks and institutional investors, mostly holding dollar-denominated assets, generate large amounts of transactions when they participate in the Japanese stock market or bond market. Japan’s central bank, which holds about $800 billion in U.S. bonds, exerts great influence in the foreign exchange market, affecting the demand and supply of USD/JPY by manipulating the open market.
Finally, large Japanese exporters are also known to send their overseas earnings to their home countries during the Tokyo foreign exchange market, which increases the exchange rate fluctuation. Meanwhile, GBP/CHF and GBP/JPY show high volatility in Asian markets for central banks and large investors to adjust their positions in preparation for European market opening.
Traders who do not prefer risk, AUD/JPY, GBP/USD, and USD/CHF are good choices. Usually, these calls are because mid-to-long-term traders may take into account the fundamentals of decision-making. Traders can protect their investment strategies from abnormal market movements due to speculative day traders by choosing currencies with low fluctuations.
US market (New York FX market)
8:00 to 17:00 (Eastern Time)
The New York market is the second largest in the foreign exchange market and it serves as the last market of the day. Forex trading activities are minimized during the afternoon market until the start of the Tokyo forex market the next day. Many of the time zones in which the US market opens are still in the European market, so they overlap, indicating very high liquidity.
If you prefer risk, we recommend trading GBP/USD, USD/CHF, GBP/JPY, GBP/CHF. This is because the average range of variation during the day is about 120 pips. The above-mentioned currencies are particularly active during this time because they directly include the dollar.
To be more specific, as the U.S. forex market opens during the U.S. foreign exchange market’s opening hours, foreign investors convert their currencies (such as the Yen, Euro, and Swiss Franc) into dollar-denominated assets in the U.S. market for stock and bond investments. Also, this time zone is the time zone where GBP/JPY and GBP/CHF show the largest daily fluctuations as the European and U.S. markets overlap.
In the foreign exchange market, the exchange rate for most currencies is denominated in dollars because the currency pair must exchange it for dollars before it changes to another currency. For example, GBP/JPY does not change directly from Yen to Pound but is eventually converted to Yen once converted to Dollar.
Thus, trading GBP/JPY also depends on the two aforementioned currency pairs’ correlation, including two different currency pairs: GBP/USD and USD/JPY. GBP/USD and USD/JPY are negatively correlated because they move in opposite directions, amplifying volatility.
The movement of USD/CHF can also explain similar methods, but the intensity of volatility is greater. Although currency trading with high volatility may be attractive somehow, we should remember that the inherent risks are also greater. Traders always have to continuously modify their strategies to suit market conditions, as sudden changes in exchange rates can disrupt orders or invalidate their long-term strategies.
Traders who do not prefer risk are usually recommended to choose USD/JPY, EUR/USD, and USD/CAD because the above currency pairs show moderate fluctuations to allow traders to take small risks and earn attractive returns. These currency pairs are rich in liquidity, allowing investors to quickly and efficiently realize losses or profits. These currencies are also not very volatile, which is advantageous for traders using long-term strategies.
European market (London FX market)
2 pm to noon (Eastern Time)
London’s foreign exchange market is the largest and most important market in the world. According to a BIS survey, it accounts for more than 30 per cent of the world’s trading volume. Dealing desks for large banks are usually located in London, and the major currency transactions are operating in London due to their high liquidity and efficiency. London’s foreign exchange market is the most volatile compare to other markets due to the larger number of market participants and huge trading volume.
GBP/JPY and GBP/CHF are suitable for risk-loving traders. The pairs represent an average daily variation of more than 140pips which can generate large profits in a short period of time. These two currency pairs have a large fluctuation because large participants increase trading volume in the European market.
The European market directly connects the U.S. market to the Asian market. Large banks and institutional investors will complete rebalancing of their portfolios at this time and begin to convert their European currency assets into U.S. dollar-denominated assets in preparation for an opening in the U.S. market. These currency pairs show extreme volatility in the European market from the large market participants.
Investors who can tolerate more risks have a wide range of choices. EUR/USD, USD/CAD, GBP/USD and USD/CHF (which have an average of 100 pips of volatility) are good currency pairs to choose from because of their high volatility and many opportunities to enter the market.
Investors who do not prefer risk may choose NZD/USD, AUD/USD, EUR/CHF, and AUD/JPY with an average variation of around 50 pips. These currency pairs tend to move according to fundamentals and are less likely to lose money due to speculative daily traders.
Overlapping Time Zone,
US and European Markets.
8 o’clock to noon (Eastern US time)
The foreign exchange market tends to move most actively during times when the U.S. and European markets overlap. The volatility between 10 p.m. and 2 a.m. takes about 70% of the average fluctuation of the exchange rate traded in the European market and 80% of the average fluctuation in the U.S. If traders can’t trade all they long, but expecting price fluctuations and volatility to be high, this is the most appropriate trading time when the time zones of the U.S. and Europe overlap.
Overlapping Time Zone,
European and Asian Markets.
2 to 4 o’clock (Eastern Time)
Since the time zone where Asia and Europe overlap is the morning time in Europe, there are not many transactions, so the volume of trading is minimal compared to other times. Also, the actual overlapping time is short. Because trading volume is not high during this time, risk-loving traders may spend time waiting for breakthroughs in the European market, taking a nap until the U.S. market opens, or formulating position strategies (a type of trading strategy that makes a profit from long-term buying or selling).