The Forex market, unlike other financial markets is a 24 hour affair. That’s right, you can trade in and out of the Forex market day or night between the Forex market hours of 5pm Sunday (EST) to 5pm Friday (EST).
While this provides a great opportunity for traders to take advantage of the world market, it does have its drawbacks.
In this lesson we’ll take a look at the various trading sessions that make up the Forex market as well as the advantages and disadvantages that come with trading a 24 hour market.
The 24 Hour Market
At this point you may be asking, if Forex is indeed a 24 hour market, why can I only trade Monday through Friday?
This brings me to a very common misconception in the Forex world – the idea that the market closes on weekends. In truth, the Forex market never closes. The only thing that closes is the ability for retail traders to participate.
What is a retail trader, you ask? Put simply, a retail trader is someone who buys or sells for their personal account, and not for another company or organization. So unless you are an institutional trader, you are a retail trader.
So although the ability for retail traders to participate is halted over the weekends, the Forex market as a currency exchange is alive and well. This is what creates so called “gaps” when the market opens at the beginning of the week. It’s simply the result of your broker updating their charts from last week’s price action to the current price action at the start of the trading week.
We’ll get into gaps in a later lesson. For now just know that the market never closes due to the needs of international trade, as well as the needs of central banks and global industries to conduct business.
There are various sessions that occur around the world which make up the Forex market hours each day. Let’s take a look at those market sessions.
Forex Market Sessions
Because this is a 24 hour market, there is always at least one active trading session. There are even times when these sessions overlap.
The easiest way to visualize how these Forex market sessions operate is to imagine the earth relative to the sun. Wherever the sun is shining, the Forex market is open. This is of course a simplified way of thinking about it, but it does help to visualize the Forex trading hours in this way.
The chart below shows the different Forex market sessions in Greenwich Mean Time (GMT).
Here is a breakdown of the chart above in Eastern Standard Time:
- New York opens at 8:00 am to 5:00 pm EST
- Tokyo opens at 7:00 pm to 4:00 am EST
- Sydney opens at 5:00 pm to 2:00 am EST
- London opens at 3:00 am to 12:00 noon EST
As you can see from the chart above, there are several market sessions which overlap. The most obvious, and the most heavily traded, is the London / New York overlap. This is when liquidity is at its highest as many Forex market participants prefer trading during this time.
Which Session is the Best to Trade?
One of the most common questions among Forex traders is, when is the best time to trade? Like most things, it’s all relative to your trading style as well as your lifestyle. Obviously if you’re located in a part of the world where the London / New York session overlap occurs at 3 AM, this may not be the most advantageous for your lifestyle.
The great thing about trading price action on the higher time frames is that market hours and market sessions don’t particularly matter. For example, if you spot a bullish pin bar on the daily time frame, you would simply set your pending order and let the market decide what becomes of it. It doesn’t particularly matter which session triggers the order.
Advantages and Disadvantages
Like most things, there are advantages and disadvantages to the Forex market being a 24 hour market. I will note, however, that the disadvantages typically reign true with those just starting out. In fact, I feel confident in saying that the disadvantages below are what make the Forex market one of the more challenging markets to conquer as a beginning trader.
Let’s start with the advantages:
- The 24 hour market offers the ability to trade at any time of the day regardless of your location in the world
- No market closings during the week means very few gaps from one day to the next
- Because it’s a 24 hour global market, there is much greater liquidity than that of other financial markets
Now for some disadvantages to Forex market hours:
- The 24 hour nature of the Forex market can lead to traders over-thinking their positions
- The Forex market requires more self-discipline to take breaks away from trading due to the market never closing
One thing that becomes immediately apparent to new traders is the Forex market’s ability to draw them in for hours at a time. Many new traders find it hard to take breaks from the market because they feel the need to monitor their positions at all times.
This is one of the more destructive habits of new traders and is enabled by the fact that the Forex market never closes.
I hope this lesson has shed some light on the subject of Forex market hours as well as the various market sessions that make up a 24 hour period.
Here are a few key points to keep in mind:
- The Forex market is a 24 hour market that technically never closes
- Retail traders are those who trade for their personal account
- Retail trading hours in the Forex market are between 5pm EST on Sunday until 5pm EST Friday
- There are 4 market sessions that make up the Forex market hours – London, New York, Sydney and Tokyo