One of the reasons why the foreign exchange market attracts traders is the fact that it is open 24/5. Except for the weekend, anyone with a trading account can buy or sell a currency pair at any time during day or night.
The three trading sessions (Asian, European, American), have different characteristics in terms of general market volatility and economic data to move the prices. In general, we can say that during the Asian session, the market is relatively calm, while the London and North American sessions experience higher volatility levels.
However, from time to time, the roles change. For instance, when important events with the potential to move markets take place in the Asian session, the European and North American ones have little or no volatility.
For this reason, before searching for the best currency to trade at night, one needs to consider various factors. First, the time zone the trader lives in. If you live in Asia, the best Forex pairs to trade at night might be the ones active in the European and American sessions.
Second, when looking for the Forex pairs to trade at night, the economic calendar helps to guide traders. For example, if the Reserve Bank of Australia (RBA) is due to release its cash rate decision, the Australian Dollar (AUD) pairs will be extremely volatile during the Asian session. Hence, traders might choose to skip trading them in order to protect the trading account from unwanted swings or to reduce the exposure on other currency pairs and focus only on the AUD ones.
So, what are the best currency pairs to trade in Forex? There’s not a straightforward answer to this question, due to the various factors affecting the market. However, this article intends to provide a guide for picking Forex pairs to trade at night.
What Are Forex Night Trading Hours?
As mentioned earlier, the trading night hours are different for each trader. However, in general terms, traders refer to the Asian session to trade night hours. Even traders living in Asia refer to the Asian session as “trading at night,” due to the lack of volatility in the market.
During the Asian session, the AUD is the driving currency in terms of volatility. It reacts quickly to changes in the global commodity market due to the fact that the mining industry is a big contributor to Australian GDP and is responsible for a sizeable part of the Australian exports.
As such, the RBA’s calendar offers a clue regarding the possible changes in volatility. Important economic events out of Australia may spill over to the other regional currencies like the Hong Kong Dollar (HKD) or the New Zealand Dollar (NZD).
The Japanese Yen (JPY) is another currency having a special role in the Forex dashboard. However, it doesn’t move that much during the Asian session, except when the Bank of Japan (BOJ) announces changes in its monetary policy or when the Tankan report (i.e., a comprehensive report about the state of the Japanese economy) is released.
As the world’s manufacturer, China imports raw materials from different countries. Australia (metals, minerals) and New Zealand (milk, powder milk) export many products to China, becoming dependent on the state of the Chinese economy. For example, if China enters a recession, the first currencies to react is the AUD and NZD. Or, if the Chinese Gross Domestic Product (GDP) grows above expectations, the implications are that China needs to import more to satisfy production needs; hence, exports from Australia and New Zealand will increase – bullish for the AUD and NZD.
Why Trade at Night – Forex Pairs to Trade
There are plenty of reasons to do that. One would be that the margin the broker needs as collateral when trading differs from currency pair to currency pair. Typically the NZD pairs require less margin than, say, the EURGBP pairs. But, most NZD pairs are more active during the Asian session (e.g., AUDNZD, NZDUSD, NZDJPY) than any other sessions.
Another reason is that some trading strategies perform better during the night session. More precisely, scalpers (i.e., traders targeting small market movements) favor the Asian session that the other sessions.
Automatic trading also outperforms during the Asian session because the markets are relatively calm. Slippage, therefore, doesn’t exist, so traders can run Expert Advisors focusing on short-term market moves.
Furthermore, during the Asian session, trading with oscillators on the lower timeframes works most of the time. Almost all oscillators have overbought and oversold levels, but sometimes in strong market trends, the currency pairs remain in overbought or oversold areas more than traders remain solvent. This doesn’t happen in the Asian session because of the lack of trending conditions and few market participants – hence, overbought and oversold levels do work.
For a trading strategy to be profitable, it doesn’t mean that a currency pair must move hundreds and hundreds of pips. Instead, traders increase the volume for a single trade and lower the expectations.
After all, if the market is supposed to range during the night session, it makes sense to expect small trends on the lower timeframes, like one-minute, two-minute, and up to five-minute ones.
What Are the Best Forex Pairs to Trade at Night?
Typically the cross pairs (i.e., the ones that don’t have the USD in their componence) move in minimal ranges during the Asian session. That’s specifically true if there’s no Asian currency involved (e.g., EURGBP, GBPCAD, EURCAD).
However, it all depends on the trading strategy. Sometimes the Asian session offers excellent opportunities to scale into a position, using a longer-term market perspective. In other words, any pair is suitable for trading at night – the only thing that makes a difference is the trading strategy involved.
The rule of thumb says that the market travels most during the London and American sessions and correct during the Asian one. But corrections are of two types – horizontal and against the underlying trend.
Therefore, the Asian session offers the possibility to add to any potential market pullback. If the GBPUSD pair closes the trading day gaining or losing one hundred pips, the chances are that during the Asian session it will correct part of that distance.
Asian traders use Fibonacci retracement levels like 23.6%, 38.2% or 61.8% to find out levels to add to a potential trade. By Asian traders, we refer not only to traders that live in Asia but to all traders – institutional players have offices on the Asian continent while the rest can use pending orders to trade at night.
For traders favoring news trading, the AUD and NZD pairs react the most to economic news out of Australia and New Zealand. Also, the two central banks, RBA and Reserve Bank of New Zealand (RBNZ), are responsible for creating opportunities to speculate during the night time.
One of the biggest challenges when trading at night comes from market conditions. Trading at night time is characterized by lower liquidity levels. This results in wider spreads than usual, as liquidity providers can’t offer the best quotes to the brokers.
A broker like FXOpen pools liquidity from multiple providers so that even during the Asian session, the clients enjoy the optimal trading conditions. To open an account with FXOpen, please click here.