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Forex Market: Hours, Trading Sessions, and Rollovers

The foreign exchange market, often referred to as the forex market, is truly a global marketplace. Unlike other financial markets, the forex market has no physical location or central exchange. Instead, trading takes place directly between two parties in an over-the-counter (OTC) market. This global reach allows for 24-hour trading, offering a myriad of opportunities for traders. Understanding how this 24-hour market operates is crucial to planning a successful forex trading strategy.

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Forex Market Hours: A 24-hour Market

The forex market operates 24 hours a day, moving from one time zone to the next, across each of the world’s major financial centers. Forex trading hours, according to GMT, are as follows:

• New York: 1:00 pm – 10:00 pm GMT
• Sydney: 10:00 pm – 7:00 am GMT
• Tokyo: 12:00 am – 9:00 am GMT
• London: 8:00 am – 5:00 pm GMT

As one major forex market closes, another one opens. This seamless rotation enables traders, brokers, and central banks worldwide to trade online 24 hours a day.

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Trading Sessions and Market Activity

Forex trading can be further segmented into three major sessions:

• London Session: 8 am GMT – 5 pm GMT (EUR, GBP, USD are the most active currencies)
• US Session: 1 pm GMT – 10 pm GMT (USD, EUR, GBP, AUD, JPY are the most active currencies)
• Asian Session: 10 pm GMT – 9 am GMT (This session overlaps with the European session and is considered less suitable for day trading)

The most productive hours for day traders are typically when markets overlap, particularly the London and US markets overlap between 1 pm GMT – 4 pm GMT. This period sees heightened activity, leading to increased opportunities for traders.

It’s important to remember that not all times are equally good for trading. During the less active period between 5 pm – 7 pm EST, after New York closes and before Tokyo opens, Sydney will be open for trading but with more modest activity than the three major sessions. As a result, less activity means less financial opportunity.

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Economic Indicators and News Releases

Another key aspect to consider when planning your forex trading schedule are the times when economic news is released. Government reports and economic news can have a substantial impact on the forex market, causing sudden price fluctuations.

Traders can opt to include these news periods in their trading strategy or decide to suspend trading during these periods. Both approaches require alertness and an understanding of the potential impact of these news releases.

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Overnight Positions and Rollovers

Forex trading involves buying one currency while selling another. When these currencies are held overnight, the trader might be charged or earn interest on the position, depending on the interest rate differential between the two currencies. This is known as a rollover.

Rollover is the process of extending the settlement date of an open position. In the forex market, the settlement date is two business days from the transaction date. However, in margin trading, there is no physical delivery of currency, so all open positions must be closed daily at end-of-day (22:00 GMT) and re-opened on the following trading day, pushing out the settlement by another trading day.

Rollover is conducted through a swap contract, which can result in a cost or gain for traders. XM, for example, doesn’t close and re-open positions but simply debits or credits trading accounts for positions held open overnight, depending on the current interest rates.

For forex and spot metals, XM calculates rollover charges based on the tomorrow-next day rate, incorporating their mark-up. For stocks and stock indices, rollover rates are determined by the underlying interbank rate, plus/minus XM’s mark-up on long and short positions.

Rollovers are usually applied at 22:00 GMT, the daily bank cutoff time, including weekends. For instance, XM applies a 3-day rollover charge on Wednesdays to level the time gap of weekends.