THE BEST DAYS AND TIMES TO TRADE FOREX

What are the best days to trade?

The currency markets are generally liquid throughout the week. On Mondays, liquidity is slow to pick up and on Friday, liquidity begins to decline when the European markets close. Therefore, by the process of elimination, the best days to trade currencies are Tuesdays, Wednesdays, and Thursdays.

Additionally, many countries have holidays on Mondays. The US markets are closed on Memorial Day and Labor Day which are both Mondays. Most UK bank holidays are also on Mondays. As you would expect, when a market is closed for a holiday, the liquidity generally dries up.

When is the best time to trade the currency markets?

The best time to trade the currency markets is when the liquidity is at its highest. This does not mean it’s the most profitable time, it means that volume is generally the highest. Elevated levels of volume usually contract the bid-offer (also known as the bid-ask) spread, which makes trading during these hours cost effective.  Remember, brokers and dealers generate their gains by providing customers with a bid-offer spread. When markets become illiquid, the bid-offer spread generally widens.

What are the trading hubs?

The currency markets have four distinct time zones which include: Singapore, Tokyo, London, and New York. The liquidity in the currency markets is largest when more than one of these hubs is simultaneously open. Both volumes and volatility will increase when multiple trading hubs are open. While these hubs function independently, they all trade the same major currencies. Therefore, when more than one hub is open, the number of traders who are actively purchasing and selling the same currencies increases, generating more liquidity. The bid-offer spread in one hub is affected by the bid-offer spreads in other hubs, which helps to contract the spread.

Trading the major currency pairs

The major forex pairs, which include the Euro, Japanese Yen, British Pound, Swiss Franc, Australian Dollar, and Canadian Dollar, trade versus the US dollar. The most liquid is the Euro with nearly 31% of the global volume. This is followed by the Japanese Yen, the British Pound, the Australian Dollar, the Canadian Dollar, and the Swiss Franc.

The British Pound, the Euro, and the Swiss Franc are most active during the European time zone. When the New York market opens at 8am Eastern Standard time, and both the European market and the US markets are open, liquidity is generally at its peak. This overlap also provides a period when volatility is likely its highest. Nearly 50% of all of currency trading occurs during this period.

The Canadian dollar is most liquid and active during the New York hub time zone. Trading picks up as New York opens, and begins to wind down at approximately 4pm Eastern Standard Time each trading day.

The Australian dollar is most active during the Singapore trading hours, into the Japanese trading time zone. Liquidity remains solid during the European trading zone and begins to decline after the European markets close. You might also find some liquidity at the end of the New York trading session at 5 to 6pm Eastern Standard Time as the Singapore trading session begins to open.

The Japanese Yen is generally most liquid during the Tokyo trading session into the European trading session. As one of the most liquid majors, it continues to trade actively until Europe closes and then begins to see a decline in liquidity.

Conclusion

The forex currency trading times are active 24 hours a day but have specific days and times where liquidity is most beneficial. The best days to trade currencies are Tuesdays, Wednesdays, and Thursdays because on Mondays, liquidity tends to be slow to pick up and on Fridays, it tends to decline because the markets close.

Higher levels of liquidity generally occur when trading volumes are at their highest. The major currency pairs experience the most liquidity on average during the European trading hours. Specific pairs such as the Canadian dollar and the Australian dollar are most active when their country is experiencing business hours.

Most of the liquidity in the forex markets occur when there is an overlap of major trading hubs. The four major hubs include Singapore, Tokyo, London, and New York. During these periods, more traders are generally active which reduces the bid-offer spread, making trading more cost effective for dealers and price takers, and generally the best time to trade.