The forex market is open 24 hours a day. It has the most access and availability compared to every other financial market. The markets open every Sunday at 5:00 P.M. EDT and close every Friday at 5:00 P.M. EDT. This doesn’t mean you should be attempting to trade around the clock.
There are optimal times you should be looking for when trading specific currencies. Generally, the time that the local stock market is open is when the largest amount of volume and liquidity can be expected for that local currency. You should attempt to trade the USD during U.S. stock market hours rather than off-peak hours.
Here is a quick look at the makeup of the forex markets:
- New York opens at 8:00 A.M. to 5:00 P.M. EST (EDT)
- Tokyo opens at 7:00 P.M. to 4:00 A.M. EST (EDT)
- Sydney opens at 5:00 P.M. to 2:00 A.M. EST (EDT)
- London opens at 3:00 A.M. to 12:00 noon EST (EDT)
There are times when two sessions overlap:
- New York and London: between 8:00 A.M. to 12:00 noon EST (EDT)
- Sydney and Tokyo: between 7:00 A.M. to 2:00 A.M. EST (EDT)
- London and Tokyo: between 3:00 A.M. to 4:00 A.M. EST (EDT)
*These times will have a lot more liquidity as there are a higher number of participants trading.
How do you make money with forex?
Like the stock market, in foreign exchange markets, you either buy or sell currencies. The goal is to trade one currency with the expectation that the currency you receive will appreciate in value over time.
Here is a step-by-step example of how it works:
- Let’s say you buy 10,000 euros at the EUR/USD exchange rate of 1.30. (An exchange rate is the ratio of one currency value against another currency.)
- You would have to pay: 1.30 x 10,000 or USD 13,000.
- One month later, the exchange rate for the EUR/USD is 1.37, so you decide it would be a great time to collect some profit.
- You exchange the 10,000 euros back into dollars: 1.37 x 10,000 or USD 13,700.
- You earn a profit of $700!
The EUR/USD in this example indicates how many USD one euro can buy or how many USD you need to buy one euro.
Currencies are always quoted in pairs. The first currency in the pair is known as the base currency. The second currency in the pair is known as the quote currency.
EUR is the base currency
USD is the quote currency
The base currency is the basis for the buying or the selling. If you buy this pair, you are buying the base currency and simultaneously selling the quote currency. If you sell the pair, you are selling the base currency and simultaneously buying the quote currency.