Optimal Forex Trading Times

Here's a quick quiz! When do TV ratings typically peak? If you answered "during prime time," you're absolutely right!

Now, you might be wondering, what does this have to do with forex trading sessions?

Well, much like TV ratings, the "ratings" in the forex world, referring to liquidity, tend to be highest when there's a larger number of participants in the market.

So, when is the best time to engage in forex trading?

Logically, you might assume that this occurs during the overlap of two trading sessions.

If you thought that way, you're partially correct. Let's delve into the characteristics of these overlapping sessions to understand why.

Tokyo – London Overlap

During this session, liquidity is relatively thin for a few reasons. Typically, the Asian session doesn't see as much market activity, making the afternoon rather uneventful. It can be quite dull.

As European traders are just starting their workday, trading can be unexciting due to the diminishing liquidity.

This could be an ideal moment to relax, enjoy a round of mini-golf, or scout potential trades for the upcoming London and New York sessions.

London – New York Overlap

According to the latest data from FXLIQUIDITY, a market analytics service, liquidity reaches its peak around 10 am and 3 pm London time (10 am NY time).

This is when the real action kicks in! You can practically hear traders cracking their knuckles during this period, knowing that they have a busy day ahead.

This is the busiest time of the day when traders from the two largest financial hubs (London and New York) engage in active trading.

It's also the time when significant market movements can occur, particularly when U.S. and Canadian news reports are released.

Late-breaking news from Europe can also impact the markets.

If any trends were established during the European session, they might continue as U.S. traders join in, basing their decisions on earlier developments.

Finally, it's crucial to note that during this period, the WM/Refinitiv Spot Benchmark Rate is determined.

This rate is set at 4 pm London time and is commonly known as the "London fix."

A currency "fixing" is a specific time each day when currency prices for commercial transactions are established and fixed.

Because currency prices fluctuate constantly, a daily reference point is essential.

Banks and other financial institutions rely on this daily rate to set their currency exchange rates, which in turn determine prices used in corporate foreign exchange transactions.

From a trading perspective, this daily fix can witness a surge in market activity in the minutes leading up to the fixing time, followed by a sudden drop in activity precisely at the fixing time.

Lastly, as European traders wrap up their day, there might be some choppy market movements just before the U.S. lunchtime.