Trading currencies (sometimes called forex trading) is a popular way to trade binary options. Since currencies can be traded all day, many traders are searching for the perfect time to invest in a binary option based on currencies. This article, The Best Time to Trade Currencies, will show you the perfect time to invest in binary option based on currencies.
What is the best time to trade currencies?
The biggest difference between currency trading and stock trading is that stocks can only be traded during a certain time period, but currencies can be traded all day from Monday to Friday. So is there a time, that can be defined as the best time to trade currencies?
A stock is traded at its home stock exchange. American stocks, for example, are traded in New York, Japanese stocks in Tokyo, British Stock in London. That limits the time of the day you can trade a stock to the time its home stock exchange is opened for trading.
To invest in a binary option based on a stock as the underlying asset, you have to adapt to the stocks trading time. Binary options based on a stock are only available when the stock’s stock exchange is open.
The big advantage of currencies compared to stocks is that currencies are traded on every stock exchange. Due to the different time zones, there is always an open stock exchange on which you can invest in currencies on weekdays. This has led to the wide-spread believe that it does not matter when a trader invests in a binary option based on currencies. Unfortunately, nothing could be further from the truth.
Just like stocks go through different trading periods during the day – near the end of the trading day the trading volume is usually significantly lower, for example – currencies experience the same kind periods, just in a little different way.
To understand why and how, let us take a look at the three stock exchanges with the highest volume of currency trading: London, New York, and Tokyo.
The opening hours of the three major stock exchanges overlap at some points:
- London: 03:00 – 12:00 EST
- New York: 08:00 – 17:00 EST
- Tokyo: 19:00 – 04:00 EST
These overlapping periods feature a significantly different trading environment than the non-overlapping periods: There are more traders in the market, the trading volume is higher, and the market has more volatility. As a trader, you have to actively seek the trading environment that is best for your type of trading strategy.
How to find the best time to trade your strategy
Trading strategies are very different from one another. Some work better in a fast-paced environment with high volume and high volatility. Some are better suited for quieter market environments with less volatility and less volume. Depending on which strategy you use, you should trade it during the market times that are best for it.
A trader of closing gaps, for example, will mainly be looking for exhaustion gaps. Exhaustion gaps occur during periods with low volume, when only few traders are in the market. If you are trading a similar strategy, you should try to find quieter market environments, when fewer traders are in the market.
During a time of the day when two big stock exchanges trade currencies simultaneously, quieter market environments are harder to find. Therefore, you will rarely be able to find exhaustion gaps. As a result, you will either be able to invest on significantly fewer signals or you will invest on signals of a lesser quality. Both options will reduce your profits significantly.
With a strategy like this, you should trade when only one major market is open. Luckily, you can find an ideal trading time throughout the entire time. That means, it does not matter where you live, you can always trade strategies specialized on quieter market environments with currencies.
With strategies that specialize on market environments with higher volume, on the other hand, you should do the exact opposite: You should seek out overlapping periods. They are perfect for traders looking to trade breakaway gaps and runaway gaps, for example.
The best time to trade currencies and to use this kind of strategy is from 08:00 to 12:00 EST, when the European markets and the American markets overlap. To a little lesser extent, the time from 03:00 to 04:00 EST, when Tokyo and the European markets overlap, also provide a good trading environment.
Depending where you live, executing that kind of strategy in the perfect market environment might require you to get up in the middle of the night. The better results will be worth the effort.