Weekend forex markets are separate from those that operate on weekdays. This means that to trade on weekends, you’d have to open a separate weekend position. Once the weekend ends, this separate weekend position will roll into a weekday one.
Further, it’s important to remember that spot forex is available on weekends, which can be critical if you plan to use weekend forex trading to hedge your weekday positions.
When is the most popular time to trade forex?
The overlap between the European and North American sessions, which occurs from 8am to 12pm EST (1pm to 5pm GMT), is generally considered the most active and volatile period in the forex trading market. This can be appealing to traders with a high-risk appetite looking for greater rewards – and in particular, those looking to profit from exotic currency pairs.³
In general, a trader looking to profit from volatility usually finds that the most popular times to trade are when forex markets overlap in their trading times. This is because trading volume is elevated by two massive markets operating at the same time.
However, a trader with a lower risk appetite might opt to trade outside the highly active hours and stick to popular currency pairs. Beyond this, it’s worth noting there are always potential opportunities (which are, as usual, accompanied by a certain level of risk).
Traders should also pay attention to news releases, including macroeconomic data releases like employment, gross domestic product (GDP) and inflation, as well as announcements by central banks impacting interest rates.
To summarise, traders might wish to consider their strategy, risk profile, forex pair of choice and time zone as more important than following the crowd.
How do overlaps in trading times affect forex?
Overlaps occur when two or more forex markets are open and operating at the same time. This can have a major impact on forex trading because liquidity is generally higher, making it a popular time to trade. These overlap periods enjoy positive feedback; because traders know there’s more liquidity, this encourages them to trade which further increases liquidity.
This can make it a more attractive time to trade. High liquidity indicates that a currency pair can be bought and sold without significantly affecting its underlying price. For a day trader, this can bring benefits like price stability, low bid-ask spreads, efficient execution and lower trading costs.
And because overlaps occur at peak times, they’re also when you’re most likely to find volatility in the market – though it’s always worth remembering that volatility goes both ways.
There are three major forex markets that experience overlaps with each other: the Asian market, the European market, and the North American market.
- Asian/European overlap: occurs between 2am and 4am EST (7am to 9am GMT)
- European/North American overlap: occurs between 8am and 12pm EST (1pm to 5pm GMT). This overlap is generally considered the most active and volatile period in the forex market
- Asian/North American overlap: occurs between 7pm and 10pm EST (12am to 3am GMT)
How do news announcements impact forex markets?
While forex markets are subject to internal drivers based on technical analysis and market sentiment, news developments are the major external drivers of prices.
The value of a currency is tied to macroeconomic developments in its country of origin, which in turn affects demand for the currency.
For example, an interest rate cut by the Bank of England makes the pound easier to obtain, increasing supply and pulling down its value relative to other currencies where interest rates aren’t falling. Conversely, an interest rate rise by the Bank of England makes the pound more attractive, increasing its value.
In forex markets, announcements like these, especially when they’re unexpected, can have a major impact on the value of a currency pair. However, it’s also the case that some pieces of news can be overinflated in importance and have little effect on the markets.
The five most important news announcements that affect forex markets are:
Interest rate decisions
Interest rate decisions affect the supply of currency in the country where those interest rate decisions have been made. If interest rates are unchanged in a comparison country, the pair will move up or down depending on the direction of interest rates in the first country.
CPI data
Inflation data like consumer price inflation (CPI) can have different ramifications on the forex market. Higher-than-expected inflation reads can devalue a currency and weaken it in a forex pair. Of course, it can also signal future interest rate increases by the country’s central bank, increasing demand for the currency.
Central bank meetings
Interest rate decisions are often signalled by central banks well in advance, but final decisions are occasionally different to what prior rhetoric might suggest. Traders closely monitor the oratory of central bank governors to get hints of future monetary policy decisions.
GDP data
Economic growth data, including most importantly GDP, can be another signal of demand for a country’s currency. Stronger-than-expected GDP data can increase demand for a currency, while worse-than-expected data can reduce demand.
Unemployment rates
Unemployment is a driver of forex trading, given what it says about the wider economy. When unemployment gets too low, it can lead to increased expectations of interest rate rises, increasing demand for a currency through an anticipated drop in supply.
How do I start trading forex?
1. Choose a currency pair
2. Open a live account (spread bet or CFD) or practice with a demo account
3. Choose how you want to trade:
a) Spot, which is available for both contract for difference (CFD) trading and spread betting
b) Forwards, which is available through spread betting
c) Options, which is available for both CFD trading and spread betting
4. Decide whether to sell or buy
5. Set your stops and limits
6. Open and monitor your position
When you trade forex with us, you’ll be taking a position on the value of one currency rising or falling against another using spread bets and CFDs.
Forex spread betting allows you to make a prediction on the direction in which a forex pair’s price is heading. You’ll stake an amount of money per point of movement — the further the price moves in the same direction that you predicted, the greater your profit. But the further it moves in the opposite direction, the greater your loss.
When you trade forex CFDs, you’re agreeing to exchange the difference in the price of a position from the point at which it’s opened up until it’s closed.
Spot (cash) forex trading is the most common way to trade forex and involves the real-time trading of the current price of currencies.
Forex forwards are derivatives that give you the obligation to buy or sell FX at a specific price, on a specific date in the future. Options give you the right, but not the obligation, to buy or sell currency pairs before a specified expiry date. Unlike spot market forex, which works on current prices, you get daily, weekly, monthly and quarterly options.
The obligation difference between forwards and options is absolutely critical to understand before you place a trade.
These products all involve leveraged trading, which means you can open a larger forex trade on margin (with a small deposit). This means your losses are well as your profits can outweigh your margin amount as they’re calculated on the full position size.
Before you start trading, you should carry out technical analysis and fundamental analysis on the two currencies in the pair. In other words, you should attempt to assess how the base currency (the left of the pair), moves in relation to the quote currency (the right).
You’d choose to ‘buy’ the pair if you expect the base currency to rise in value compared to the quote currency and sell if you expected the opposite.
As the forex market is exceptionally volatile, it can make sense to set stops and limits. We offer normal stops, guaranteed stops, trailing stops, and limit orders to help you manage your risk. If you’ve never traded forex before, it can be helpful to try out your strategy using a free demo account.
Forex trading hours summed up
- Forex trading hours are usually 24 hours a day during weekdays
- You can also trade select markets on the weekends using our platform, including the GBP/USD currency pair
- The opportune time to trade forex depends on your trading strategy, but times of market overlaps typically have the highest liquidity
- Overlaps between the US, Asian and European forex markets are popular periods among traders
- News releases linked to interest rates, inflation and GDP can all have a significant impact on the forex market
¹ Forex Market Hours – Forex Market Time Converter – Babypips
³ Forex Market Hours – Forex Market Time Converter (timezoneconverter.com)