Brokers use market hours as a marketing tool for promoting the forex trading. The currency market is publicized as 24 hour market. Many people naively trade the currencies believing that they can get good returns merely because they can trade for more time. But new traders should understand the fallacy behind this logic. You should understand the true Forex market hours.
The Three Sessions of Forex Trading
Forex market hours are divided into three sessions. The three sessions are called Asian, European and US sessions. As the names suggest, the predominant activity in the market happens in that particular region. Asia contribute majority of trades during the Asian session. European and US session follow the similar pattern. The three sessions share certain time with the next session known as overlap time. As more people trade during the overlap time, volume increases during such time. Local currency is traded predominantly during each session. You will find that Euro and Pound are traded heavily in the European session.
Lack of Market Activity
Sydney kick starts the forex market hours on Sunday. It closes on Friday when New York closes. So it is open 24 hours. You should understand if it is of any use to you as a trader. Even though the market is open 24 hours it is not active during certain period of the day. The time between New York close and Sydney open is very dormant as compared to other times. The liquidity during this time is thin. Trades that took place during this time are mostly the trades of exporters and importers as opposed to the market participants such as traders.
High Spread
As a trader you should make sure that you pay less money in the commissions. During this time the spread is high. You have to pay the spread of 4-5 pips even on major pairs like EUR/USD. The high spread also acts as a false signal to trade. If you have placed a pending order to buy, it might get triggered due to high spread. At other times this trade may not have happened. So you have to be careful. It is not profitable to trade the market any time of the day.
Market with Low Volume
For profitable results, you should trade only during the busiest forex market hours. During this time, the volume picks up. You can easily make money in high volatility market. European and US sessions and the closing hours of Asian sessions are the busiest times. The market is calm during other times. So you will have to wait patiently till the volatility increases.
Technically the forex market can be traded 24 hours. But forex market hours should not be the reason why you should trade the forex. The nuances of the market should be carefully understood. You will know these details as you spend time in the market. It is very risky to venture into something like forex with real money when you don’t know much about it. So the best way is to trade virtually till you get comfortable.
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