An often overlooked but nonetheless extremely important topic with regards to trading is what time of the day is suitable for trading. Many people might be thinking that any time that a market is open is fine to trade, however, such an assumption ignores liquidity available in markets.
When it comes to traditional markets such as FX and Stocks it is generally considered that the safest time to place trades is during the active trading sessions. The active trading sessions constitute the start of European trading until about Mid-day. The next important time of the day comes with US Stocks session open, US traders usually step into FX one hour before US session opens and are active, thus the market is fairly liquid for the first two hours of US session open. After that the infamous 3 PM, as made popular by @RampCapital on Twitter (the last hour of US stock session trading) is the second spot that markets tend to be very liquid.
The time after US session closes all the way up to Tokyo session open is generally considered a no-trade zone. The reason is quite simple, liquidity is very thin, spreads are often excessively high and it is possible to see moves that are not particularly normal. For example, for large positions (over 10 lots) when dealing with a real STP broker like us, it is possible that there won't be enough liquidity to get instant execution and the order will be executed in several smaller orders. The widened spreads could also end up costly for traders.
Of course, there are exceptions to the above rules, sometimes there are big events that are lurking around those hours, usually hand-picked by the governing bodies to diminish the impact of any big news announcements due to the lower liquidity associated with after-market moves. While, liquidity is still thinner than the high liquidity hours of the day, when there are big announcements in the after-market hours usually there is enough liquidity in markets to accomodate traders and keep spreads fairly tight.
This post has been prepared by XBTFX.
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