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.
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 8pm to midnight (GMT+8) 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 FX 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 (3pm to 5pm JST)
- European/North American overlap: occurs between 8am and 12pm EST (9pm to 1am JST). 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 (8pm to 11pm JST)
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.
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.
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 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.
Risks of forex trading
Like with any trading activity, there are risks to consider when trading forex. These include:
- Currency risk: since exchange rates are in constant fluctuation, they might change before a trade is settled
- Interest rate risk: interest rate changes have an impact on FX prices because spending levels and investment will increase or decrease across an economy based on the direction of the rate change. Interest rate risk also affects volatility in the market
- Liquidity risk: the forex is typically a highly liquid market, but it’s still possible for periods of illiquidity to occur. In such cases, you may not be able to buy or sell an asset quickly enough to prevent possible losses
- Leverage risk: trading with leverage comes with the risk of magnified losses. While you open a position with an initial deposit, potential losses (and profits) are calculated based on the full value of the trade
How to start trading forex using CFDs
- Create an account or log in
- Learn more about trading forex
- Open your CFD account and search for your opportunity
- Choose your preferred mechanism: spot or options
- Set your position size and manage your risk
- Open and monitor your position
With us, you’ll trade using contracts for difference (CFDs), taking a position on price movements – whether you think it’ll go up or down – rather than owning the asset outright.
CFD trading is leveraged, so you could gain or lose money quickly – including the potential to lose more than the initial deposit paid to open the position, as potential profits and losses are magnified to the full value of the trade. It’s useful to keep in mind that past performance isn’t a guarantee of future patterns.
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.
Options give you the right, but without any 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.
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 one on 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.
New to investing or trading? Practise on a demo account to build your confidence.
Forex trading hours summed up
- Forex trading is available for almost 24 hours a day during weekdays
- You can also trade select markets on the weekends using our platform, including the GBP/USD currency pair
- Weekend prices are quoted separately to their weekday counterparts, and are based on market conditions rather than real-time data of underlying asset prices
- The opportune time to trade forex depends on your trading strategy, but times of market overlaps typically have the highest liquidity
- Periods of overlaps between the US, Asian and European forex markets are usually popular times to trade
- News releases linked to interest rates, inflation and GDP can all have a significant impact on the forex market
- Like all trading activity, there’s risk involved in trading forex – this includes currency risk, interest rate risk, liquidity risk and leverage risk