Did you know that foreign exchange (forex) market opens 24 hours a day, excluding weekends? Wow. That means that around the clock, there is always activity of buying and selling between currencies even as you’re reading this. The forex market is not like any other market in the financial world. It operates 24 hours because as one closes, another one closes. It is also one of the most liquid markets in the world. This means that there is always going to be people who will buy and people who will sell one type of currency.
But, how can the forex market be open 24 hours a day? Here’s what it means:
Forex trading session can be divided into 4 main financial regions:
- London
- New York
- Sydney
- Tokyo
Each of these regions have different opening times but some might overlap with one another. Here the trading hours is illustrated by Malaysia time (GMT +8):
| Financial Centre | Trading Hours (Malaysia GMT +8) |
|---|---|
| London | 3 pm to 12 am |
| New York | 8 pm to 5 am |
| Sydney | 5 am to 2 pm |
| Tokyo | 7 am to 4 pm |
Therefore, as another closes and another one opens, the forex market can be considered to open 24 hours a day, excluding weekends due to continuation of these financial centres. . Therefore, this marketplace is described as having a global worldwide reach and the most liquid asset market in the world.
If you live in other parts of the world, you can use this converter to check the forex market time.
Regarding the volatility, not all times are built equal. Some specific periods of time will experience higher volatility than others. The choice of currency also differs in volatility. Firstly, we have to understand the forex market and why do people trade it?
Why do people participate in the forex market globally?
Before the internet, forex trading was available only to multinational companies, corporations and hedge funds. Then, a brokerage platform that uses more sophisticated tools and internet connection emerges that allows retail traders to enter the market. But why do people want to trade currencies?
Mainly because of the forex market spot prices. This means that at any one point, currencies are bought and sold based on their trading prices. Sometimes, the supply exceeds demand and it causes the one’s currency to increase in price relative to the others. This provides an arbitrage opportunity for people to efficiently buy at offered price and sell at market price. Imagine if 100,000 people do this and the market would be deemed efficient.
So, that’s why people trade forex markets. There’s an arbitrage opportunity where in an instance, the market is not efficient and forex traders help to restore the balance.
Best time to trade forex in Malaysia
We explained that forex traders provide the most liquid market in the world. But some periods are more liquid that provide traders with the best time to trade forex.
Best time to trade is when the market is most active. This means that these times have the largest trading volume. To find them, you simply have to look when the opening times of the market overlap.
For example; (refer to the table above)
London and New York
According to GMT +8 Malaysia time, the London and New York market overlaps from 8 pm to 11 pm. This is the most active hour that brings more volume compared to when only one market opens.
Best currencies to trade?
Since London and New York overlap at this hour, the most popular currency pair would be GBP/USD or EUR/USD. Trading these pairs would yield the best result.
London and Tokyo
According to GMT +8 Malaysia time, the London and Tokyo market overlap from 2 pm to 3 pm. This is the most active hour for Asian and European currency pairs.
Best currencies to trade?
Since London and Tokyo overlap at this hour, the most popular currency would be EUR/JPY or GBP/JPY which has high volatility.
Sydney and Tokyo
According to GMT +8 Malaysia time, the Sydney and Tokyo market overlap from 7 am to 1 pm. With 7 hours, this market pair is the longest overlap between forex markets. Therefore, you’ll find more time to trade between Asian currencies with NZD or AUD.
Best currency to trade?
Since Asia and Pacific overlap at this hour, the most popular currency would be AUD/JPY or NZD/JPY which contains a higher volatility.
How does currency pair, trading volume and time zone impact the forex market?
Forex market is open 24 hours every day, except weekends. When the city of Tokyo sleeps, other people on the other side of the world are awake. That is why it is important to take into a few different factors that give an impact to the market.
Here are a breakdown on factors that impact forex market:
Currency Pairs
Companies do business globally and in the ever-connected world, these companies would be dealing with different currencies every time they conduct business with companies from other countries. The same goes to the bank, financial institution or hedge fund.
Price movement for a certain currency is based on demand. If there is more demand, the price would go up.
For example, let’s say that company A from the United States would sell fruits to company B from Japan. This business deal is to be paid in US Dollars to company A and therefore, create demand for US Dollars. If there are more buyers than sellers for US Dollar in the market, the price of US Dollar would go up relative to Yen. This is basically how foreign currencies work.
Trading Volume
How does trading volume affect the forex market? The higher the volume, the higher the liquidity. This means that the market would be more volatile. So, there are potential fluctuations in the market that traders can take advantage of.
However, this depends on the trader’s strategy. Some traders prefer a high volume environment as it is more liquid but some traders prefer the low volume environment as it can give a certain signal.
Time Zone
How about different time zones? As mentioned above, trading volume does affect the forex market. When the time zone of two financial centre overlaps, there would be more volume flowing into the market.
For example, at 8 pm to 11 pm Malaysian time, both London and New York trading hours are active and there would be more traders or businesses who will buy the currency. So, USD/GBP would see an increase in activity. Nevertheless, the price movement of one’s currency would depend on supply and demand.
Key Takeaways
What can we learn from the factors and different time zones that affect the forex market?
- Forex trading sessions are divided into 4 financial centres; New York, London, Tokyo and Sydney. This allows the forex market to operate 24 hours every day, except weekends.
- Traders participate in the forex market because there is an opportunity being the most liquid market in the world.
- The best time to trade in forex market is when the trading hours overlap with another creating a high volume environment.
- Trading volume, currency pairs and time zone affect the forex market and can be capitalised to make better decisions.
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