Summary:
• The global forex market records $6.6 billion worth of daily trades. What are the key trading sessions and how do they work?

One of the interesting aspects of the forex market is how open it is all the time. Investors worldwide can trade whenever they want, whether during regular business hours, after work, or even in the middle of the night. However, when it comes to forex trading, not all hours of the day are made equal. You’ll know what we mean by that statement later on in the article. 

One of the most liquid asset classes is forex, and while there is always a market for it, there are periods when it is consistently volatile and when it is not. Additionally, due to the overall demography of market participants that are online during specific times of the trading day, different currency pairs display differential activity.

In this article, we will discuss three important trading sessions, examine the kinds of market activity that may be anticipated at various times, and demonstrate how to incorporate this knowledge into a trading strategy.

The 24-Hour Forex Market: What You Need to Know

For many institutional and individual traders, having a 24-hour forex market offers a significant advantage because it ensures liquidity and gives them a chance to trade at any given time. Although currency trading is always possible, a single trader can only keep an eye on a position for so long.

Since most traders can’t keep an eye on the market all the time, there will inevitably be instances when chances are lost or, worse, when a spike in volatility causes a move against an existing position while the trader is away. Because of this, a trader must be aware of periods of market turbulence and choose when it is ideal to reduce this risk in light of their trading style.

The market is typically divided into three periods of peak activity: the Asian, European, and North American sessions, sometimes known as the Tokyo, London, and New York sessions. The three cities serve as the principal financial hubs for each of the three regions, hence the interchangeability of their names. Moreover, since the majority of banks and firms in each of the three powerhouse regions conduct their daily business online, there is also a higher concentration of traders during these times. As a result, the markets are most active during these times.

Asian Session

At 2200 GMT, the Sydney market opens to begin the Asian session. Sydney open is really the time that the financial markets in New Zealand open, despite the name. The Asian session lasts until 0800 GMT when Tokyo closes. The Asian session is frequently distinguished by low liquidity, with the majority of pairings typically trading in a range. Currency pairs typically trade with substantially bigger spreads due to the low liquidity.

When important economic news releases are scheduled, the Asian session is most active in the early hours. The Australian dollar, Japanese yen, and New Zealand dollar are the best currencies to trade during the Asian session. Additionally, central banks in Australia, New Zealand, Japan, and statistical organizations, should be kept an eye out for any news releases.

The London Session

At 8:00 am GMT, the London session begins as the Tokyo session is coming to an end. At nearly 32% of total activity, this forex trading session is the largest. London is the benchmark for all European financial centres and a significant global financial hub. At 1600 GMT, the London session comes to an end. Massive liquidity and significant volatility are characteristics of the London session. The London session is when many currency pairs experience their largest price fluctuations. 

During this session, price increases and reversals are most common. The majority of currency pairings are traded with relatively small spreads due to the considerable liquidity. The euro and pound sterling pairs are the best currency pairs to trade during the London session. Additionally, traders should keep an eye out for updates from the European Central Bank and the Bank of England, as well as significant economic data from the E.U.’s statistical organizations and nations, including Germany, the UK, France, and Italy.

New York Session

While the London session is still going, the New York session begins at 1300 GMT. At 2100 GMT, the New Session comes to an end. High activity is also present during the New York session, particularly in the early morning hours when it overlaps with the open London session. The U.S. dollar, the most traded and influential currency in the forex markets, causes the majority of changes. 

Additionally, the majority of news and events that affect the U.S. dollar are often announced just before the New York stock exchange opens. In the early hours of the London/New York overlap (1300 GMT–1600 GMT), there is considerable liquidity and volatility, and the majority of assets have narrow spreads. The best time to get the most out of the forex market is for an expert trader.

The latter portion of the New York session is when volatility and liquidity tend to decline, though. Traders can trade all the major pairs, including EURUSD, GBPUSD, USDCHF, USDJPY, USDCAD, AUDUSD, and NZDUSD, during the New York session, which uses the USD as its cue currency. The U.S. Federal Reserve is the central bank to keep an eye on, along with important U.S. statistics, including Nonfarm Payrolls, Trade Balance, GDP, Industrial Production, and Retail Sales.

Conclusion

A market participant must first decide if high or low volatility will suit their trading style before engaging in currency trading. For example, if more significant price action is desired, trading during session overlaps or usual economic release times may be the better choice. The next step would be to choose the ideal trading hours while taking volatility bias into account. The next step for a trader is to ascertain which time frames are busiest for their chosen trading pair.

The European/U.S. session crossover will see the most change when looking at the EUR/USD pair. In this session, there are typically alternatives to trading, so a trader should weigh the importance of excellent market circumstances against other variables, such as their physical health. For example, a forex market participant from the U.S. who prefers to trade GBP/JPY during busy hours must get up early in the morning.

Lack of sleep may result in tiredness and mistakes in judgment if the trader is not a professional. Trading during the European and American sessions overlap, when volatility is still high despite the absence of Japanese markets, may be an alternative. However, it is advised to research and make your own conclusions on which trading sessions best suit your trading style.