The foreign exchange market is variously designated as forex, currency market, or FX in financial circuits. Unlike securities exchange analogues, currency trading is conducted via a network of decentralized markets. A handful of international financial centers serve as forex “anchors.”
There are a number of factors which make this different than other markets, including:
- High liquidity due to enormous trade volumes; – Wide geographical distribution; – Extreme volatility affects specific exchange rates; – Relatively low profit-income ratio; and, – Continuous 24-hour operation
The last of these factors is a frequent source of confusion and frustration for novice money changers. In the context of currency trading, “24-hour operation” carries very different connotations than its ordinary implied definition.
Novice traders often believe that they may conduct exchanges anytime they wish. Although technically true, some terminology clarification is appropriate.
Rather than non-stop activity at a central location, “continuous trading” denotes the perpetual existence of exchange opportunities somewhere in the world.
Because of differences in time zones, there is always a currency exchange market open somewhere in the world (at least five days per week). If one market closes, there is another one which is open somewhere else in the world. Understanding this is essential, since there are times which are better for trading than others.
The best time for forex trading is when there is a high volume of trades going on. At these times, traders have the best chance of making profitable trades; the best time is when trading is going on in multiple countries simultaneously.
Most currency trading markets are open from 8 AM to 4 PM (local time). Traders should find out which times of day that the trade volumes are highest. The higher the volume, the better off you are is the rule of thumb.
Major forex market hours are as follows:
New York – trades from 8 am to 5 pm EST Tokyo – trades from 7 pm to 4 am EST Sydney – trades from 5 am to 2 am EST London – trades from 3 am to 12 noon EST
So supposing you live in the US Eastern Time Zone, the best times to trade are:
New York and London – from 8 am to 12 noon EST Sydney/Tokyo – from 7 pm to 2 am EST London/Tokyo – from 3 am to 4 am EST
There are a lot of websites geared towards Forex investors which offer free software that helps traders figure out the best times to trade based on their time zone. You can find these programs by searching for "Forex trading hours".
The arrival of different forex trading schemes makes the business very complicated today. That is why you should be able to develop a currency trading technique that is simply effective.
