Please note all times are based on the UK summer time zone and will change during daylight saving adjustments.
Why trade at night?
Forex trading tends to be less active at night and the markets can be less volatile. Major forex pairs such as EUR/USD and GBP/EUR, for example, often show less volatility at night due to reduced liquidity. As a result, trading these pairs can be a great way for beginners to get to grips with live trading as they transition away from a demo account – though it should be noted that one drawback of reduced liquidity is that spreads tend to be a bit wider.
Trading across different time zones and market sessions also offers the opportunity to look at forex pairs that are not as popular during European trading hours. While the main currency pairs do not have a high level of activity during the late and very early hours, other pairs are open for business and can show significant price movements. Asia-Pacific currency pairs such as CNH/JPY and SGD/JPY, for example, are likely to be volatile because the Asian markets are open at night and tend to have the greatest degree of liquidity. The spreads on these pairs can therefore be tighter at night.
What are the best forex pairs to trade at night in the UK?
As we have seen, the ‘best’ pair to trade at night depends on how much volatility you are looking for. Those looking for less volatility may want to consider major western pairs such as EUR/USD, GBP/EUR and EUR/GBP, which are often less volatile at night than they are during the day. Those looking for increased volatility, on the other hand, may want to consider the following pairs:
The Australian dollar and New Zealand dollar pair (AUD/NZD) is popular due to the close relationship between the two country’s economies, especially their relationship with commodities. Traders should keep an eye out for movements in US dollar markets, as many commodities are priced in USD, and fluctuations in the Chinese economy, as China is both Australia and New Zealand’s largest trade partner.
Because there are similarities between the two country’s economies they tend to react in a similar way, and will appreciate or depreciate against other currencies together. This often means that the AUD/NZD currency pair can be more stable than other pairs.
Traders looking to speculate on the price of the AUD/NZD pair when it is most volatile should trade during Asia-Pacific market open hours. The Sydney (Australia) market opens at 10pm and closes at 7am (UK time), while the Wellington (New Zealand) trading hours run from 10pm to 6am (UK time). The AUD/NZD pair is likely to experience the most volatility during the hours that the two markets overlap, which is from 10pm until 6am (UK time).
The Australian dollar and Japanese yen currency pair (AUD/JPY) is typically less popular than US dollar-denominated pairings such as AUD/USD and USD/JPY. However, the cross is a common choice among night-time forex traders because it offers combined exposure to the Japanese and Australian economies, which can provide an interesting and volatile trading backdrop.
The Australian economy is dependent on exports of natural resources like coal, iron ore, copper, gold, natural gas, uranium, and renewable energy – so much so that the Australian dollar has become known as a ‘commodity currency’. Meanwhile, the Japanese yen is influenced by changes to the US dollar, which makes it particularly sensitive to any changes to the US economy.
These factors mean that the AUD/JPY pair could see volatility if there are drastic changes in the USD/JPY pair, or in the health of commodity markets.
For those interested in trading the AUD/JPY pair, the Sydney market opens at 10pm and closes at 6am (UK time), while the Tokyo market opens at 12am and closes at 9am (UK time). This means that the ideal hours to trade the AUD/JPY pair overnight are between midnight and 6am (UK time), when there is likely to be increased liquidity and volatility.
The NZD/JPY pair is another popular yen cross, consisting of the New Zealand dollar and Japanese yen. The Japanese yen is considered to be a safe haven that many investors turn to in periods of economic decline, whereas the New Zealand dollar is not. This means the yen often appreciates against the New Zealand dollar during periods of economic uncertainty.
As with other currency pairs, NZD/JPY responds to macroeconomic factors, monetary policy, interest rate decisions, and the performance of other countries’ currencies. Historically, the pair’s valuation has, at times, also been significantly influenced by Japanese government intervention in the currency markets. For example, the government intervened following the 2008 financial crisis to weaken the yen in order to keep the country’s exports competitive. On the other side, New Zealand’s monetary policy allows the exchange rate to float freely, and the central bank has not intervened to influence the currency’s exchange rate since 1985.
As previously mentioned, the New Zealand market is open from 10pm to 6am (UK time), while the Tokyo market opens at midnight and closes at 9am (UK time). This means that the market for the NZD/JPY pair overlaps from 12am to 5am (UK time).
What should you consider before trading forex at night?
Before you begin trading currency pairs at night, you will need to take into consideration your trading plan, which should include decisions about how many hours you want to follow and monitor the market, as well as your appetite for risk. It is also important to define your forex trading strategy. A popular one for night trading is scalping as it is focused on short timeframes and small market movements.
However you choose to trade, you should ensure that you perform technical analysis of your chosen currency pair and remain informed of the fundamentals of each currency. If you were interested in trading a currency pair containing the Japanese yen, for example, you might want to consider factors such as the volatility of the pair, previous price patterns that could help to predict its trajectory, and how much the market is affected by regional news, among others. It is also crucial to establish a risk management strategy, which should utilise stop-loss orders.