Forex Trade Market is known to be operational 24 hours a day. Traders can trade any time they want, but that does not mean that they should. What do you think that implies? Due to the obvious fact that the whole world can’t be up at the same time due to the differences in time zone, it’s just as important to learn WHEN to trade as HOW to trade. Trading smartly has a great deal of interference during the time of trading when there’s heavy trading in the market. To further analyze the importance of time of trading and to see why exactly it doesn’t necessarily mean “success” to trade all the time, we first have to know about the four main trading sessions there are in the currency trading world. So the 4 main trading sessions laid out geographically are as follows:
- US session (New York)
- Asian session (Tokyo)
- European session (London)
- Sydney
In the time span of 24 hours a day, “at least” one market is open that means there are at least one or few hours in between where markets do overlap. Now what must have clicked is what is the intensity of market activity when 2 or more sessions overlap. During these time periods the trade volume is counted as the most. Traders specifically wait for these hours of overlapping sessions to jump in and start trading for the most profitability. Irrespective of time according to any one time zone, the major overlaps are:
- New York and London overlap.
- London and Tokyo overlap
- Sydney and Tokyo overlap.
Generally speaking, New York and London overlap is THE MOST busiest time period for trading, which to be precise is London afternoon and New York morning. But it is important to note that not all the currencies are traded throughout the day. The seven most traded currencies in the world are:
- US dollar
- British currency (pound)
- Japanese currency (yen)
- EURO
- Canadian dollar
- New Zealand dollar
- Australian dollar.
Asian trading session:
Tokyo is the first trading session to open. Around 6% of the total trading transactions happen during this session. Many heavy traders cook up their trading strategies using trade momentum in Asia and hence draw conclusions around that data while making trades.
European trading session:
London being the most significant and humongous trading session bags around 34% of the daily forex trading. But a downside in this case is, due to heavy traffic of traders this market session is the most volatile as well. However, many large banks around the world have their dealing desks in London because of the market share.
US trading session:
The US trading session being the second biggest trading market bags around 16% of the forex transactions. Most of the trade happens when the US and Europe overlaps. And trading density keeps on increasing until the London market closes.
Forex trading hours with respect to PST (Pakistan Standard time)
Forex trading 24/5 and the Opening/Closing Time:
Due to different time zones, a 24 hour market is required to fulfil the need of trading transactions all over the world. That’s why Forex trading is made easy through multiple market sessions for people sitting far across in different countries. But this 24 hours a day forex market doesn’t mean you could trade any time throughout the week. So basically, the forex market opens every Sunday at 5 PM EST (i.e. 2: 00 AM, Monday according to Pakistan Standard Time, but it’s sometimes observed that the proper movement starts at 3 AM PST) till 4 PM EST coming Friday (i.e. 1:00 AM PST, Saturday). Hence, the Forex market is live 24/5 with a break of 48 hours on weekends.
Different FX trading Time with respect to PST
We shall now discuss the timings of the 3 major overlaps according to Pakistan Standard Time. Sequence of Opening of Markets according to time are as follows:
- Sydney
- Tokyo
- London
- New York
Sydney and Tokyo overlap
Sydney market, according to Pakistan time, opens first at 2 AM in Pakistan and 5 PM in New York. Tokyo on the other hand opens exactly after 2 hours at 7 PM EDT (America) which means 4 AM in the morning in Pakistan. This is where these 2 markets overlap. This time period has somewhat of a better predictable trading environment because of the absence of the US market. Trader Traffic might not be very heavy but still the environment is neither too dull or very face paced. According to PST Sydney closes at 11 AM in the morning and Tokyo session ends at 1 PM.
London and Tokyo Overlap
Before the Tokyo session ends at 1 PM in Pakistan, the London session starts exactly at noon in our country. Now this overlap may involve one of the largest markets but due to the absence of most American traders and the fact that it happens only for one hour makes it a little less challenging or low impact environment for trading.
London and New York overlap
Now here’s where the BIG scare comes in for which every trader gears up from around the globe. 70% of the trade in the Forex Exchange Market happens during this overlap. According to Pakistan standard time, the London session as discussed above starts at 12 noon and ends at 9 PM at night. Meanwhile, the US session starts at 5 PM and ends at 2 AM in the morning. So this 4-hour overlap is where the 2 of the largest markets coexist where the forex trading world sees the heaviest traffic of traders from around the world. And since giants like America, London, Canada etc. are involved, a lot of economic releases are expected during this overlap. However, it’s most important to understand that such a dense trading environment doesn’t always ensure high profitability because volatility of this session despite being lucrative is risky as well. It doesn’t always benefit you when fluctuations are this unpredictable and quick. So one has to be very careful.
What is an Overnight Position and what happens if you keep it open?
Simply stating, an overnight position refers to any trade that does not close at the end of the trading day. Or In other words, the open trades that have not been liquidated by the day end. Now since it’s an open trade (and the market is operational 24 hours a day) when you leave your position, you could either get paid or charged according to the interest rates of the currencies you are dealing with in your pair. Now since keeping positions overnight could be risky, contingent orders like stop-loss or limit orders could be attached to it to save it from any major loss and diminish the risk involved.
These trades are basically held overnight to be traded the next day. Forex traders will generally take risk, cost of capital, leverage changes, and strategy into account when deciding to maintain an overnight position. The overall goal of keeping an overnight position is to try to increase profit on the trade by holding it overnight or by minimizing the loss of a losing daytime trade.
Everybody has their own perspective hence different take on strategies. Some investors think it’s profitable to make the trade shortly before the market closes while some are of the view that it’s profitable to keep positions open overnight. But the fact that the negative aspects of the previous day are eliminated when you make the trade early in the morning after holding it overnight as soon as markets open might be a little agreeable if you really think about it. But then again, if we weigh both viewpoints justly, we are aware of the capability of forex exchange markets to shift dramatically overnight, which is why it could be a little TOO risky to leave your position open before you go to sleep.
Anyhow, it is interesting to note that since the market isn’t operational after Friday 4 PM EDT (1 AM PST), people consider leaving small positions open over the weekend which could bag good profits. However, it’s better not to do the same with big positions which would welcome high risks.
Using VPS to trade when the market closes
VPS is short for “Virtual Private Server” which is a form of web hosting. It basically provides direct ISP connection with the help of data centre facilities. With the help of VPS traders can be online 24/7 without having to lose a penny due to connection errors or power outage. Institutional traders pay sizable fees to site their trading engines in close proximity to the trading engines where they derive their news trades. The majority of retail traders are not able to afford the fees that institutional traders pay, which has led to an increased demand in forex VPS services, which provide access to equivalent advanced facilities for 24 hour trading at significantly lower costs than a co-located facility. Retail traders also benefit from a host site providing the necessary stability, accuracy and speed required for trading software used today. So forex traders are more into using VPS because of the benefits it offers. i.e.:
- Accessibility
- Performance
- Security
- Reliability
- Trade from anywhere
- Remains active
- Good Speed
- International implications (puts you closer to any broker no matter where in the world)
So to sum up, to make your trading experience effortlessly smooth, traders make sure of the use of VPS for uninterrupted trading.