Why understanding international time zones is essential when forex trading

Unlike other financial markets, such as those trading in stocks and bonds, the foreign exchange (forex) market is open 24 hours a day. For traders, this is one of the great attractions of dealing in forex and contributes to it being one of the most liquid assets available. However, this does mean that forex traders need to have a solid grasp of international time zones, how they relate to each other, and the real-time differences between them.

Forex trading is international by nature, as it involves buying and selling the currencies of different nations and hopefully profiting from their continual shifts in value relative to each other. This means that traders don’t limit their activity to one central market but instead trade in various markets worldwide, many in different time zones. The overall forex market is the largest financial market globally because it is decentralized. Trading is conducted via a vast and complex network of electronic communications from multiple parties, using telephone and, increasingly, fast-moving electronic communication tools.

Crossing markets

While different markets in different cities, continents, and time zones are commonly only open for nine hours a day when one market closes, another opens, or is already open. That means forex can be traded 24 hours a day as there will always be a market, somewhere in the world, available for you to trade. Real-time international trading is made possible by the electronic communications network and the internet for the ordinary retail trader.

In reality, no human trader can monitor the markets 24 hours a day. You need to consider which markets suit your needs and whether you should focus your trading activity on the overlap periods between key markets. To make an informed decision, you should keep up with the latest EURUSD forex news and then determine when, where, and with what currency pairs you should be trading.

Changing times

The forex market is not always open. It closes for the weekend worldwide, at around 10pm coordinated universal time (UCT) on Friday until about 10pm UCT on Sunday. The last market to close is the New York market, at 5pm local time, which is 4-5 hours behind UCT depending on the time of year, and the first market to open is Sydney, at 8am on Monday, 10-11 hours ahead of UCT. 

Already you can see how this could get confusing! Not only does a trader have to remember the time differences between different international cities, but they must also remember which countries change to daylight saving time, and when they do that. In addition, your trading server will be set to a particular time zone, and you may need to set an input parameter to cover the difference between that and the time zone in which you are trading.

The advantages of 24-hour trading

Since the demise of the gold standard in the early nineteen-seventies, central banks have relied on the forex market to provide a degree of relative stability for their currencies in the face of economic and political shifts. Global business needs to access and exchange different currencies at their current value. For the forex trader, a 24-hour market means choosing when they trade and not needing to stick to conventional office hours.

Following the markets

The four big markets are those in New York, London, Sydney, and Tokyo, though the latter two are often combined as representing the Australasian market. This includes important territories such as China, Russia, and New Zealand. London represents the European market, including Germany, Spain, France, and other major territories. The North American Market, represented by New York, includes the whole of the Americas, from Canada down through South America, and therefore covers several different time zones.

Market hours in Sydney and Tokyo overlap considerably, as do those in London and New York. There is an overlap of about one hour when London is open, and Tokyo hasn’t yet closed. Sydney opens for business simultaneously with New York closing for the day. The order of opening is Sydney-Tokyo-London-New York. 

The overlap periods tend to be the busiest for trading, especially the four-hour overlap between London and New York, and when there is most volatility. Brokers will offer tighter spreads during this period, which benefits traders. As a trader, you need to be aware of the time zone you’re operating in and what is happening in other time zones. Ultimately, trading is all about timing in more ways than one.