Forex pairs and trading sessions
I know that the forex market is a decentralized over-the-counter digital marketplace for the exchange of foreign currencies. No particular entity controls this market and it serves as an intermediary that connects buyers with sellers.
The forex market is not situated at a physical central location but rather it functions on an interbank network and is open throughout the day from Monday to Friday every week.
The currency pairs that are traded on this forex market are not to be traded standalone. Currencies of various countries are paired with each other and individuals looking to participate in the forex market have to either buy or sell the pairs.
The forex market is open throughout the day, this is because the world does not function in one-time zone. At any given time, traders of one country may be getting ready for the trading session while traders in another country might still be sleeping.
The 24-hour trading session of the forex market is because of the opening of the markets of the countries. The forex trading sessions begin as the Australian markets open and it ends as the American markets close.
On the basis of these opening and closing of markets around the world, the forex market is divided into trading sessions. Each trading session is named after the opening and closing of the market of the major cities and is divided into time slots.
The forex trading sessions are divided into 4 sessions -
- The Sydney trading session - 10 pm GMT to 7 am GMT
- The Tokyo trading session - 11 pm GMT to 8 am GMT
- The London trading session - 7 am GMT to 4 pm GMT
- The New York trading session - 12 pm GMT to 9 pm GMT
These timings are listed according to the GMT. Individuals that are looking to participate during any of the trading sessions must convert the session timings according to the country they are situated in.
When to trade?
The best times to trade any financial asset and not just forex is when there is a lot of market participation i.e. when there is a lot of liquidity and volume in the market.
In conditions of low liquidity, there are not many traders actively trading in the market hence there aren’t many buy or sell orders being placed. During high liquidity, traders are actively trading and placing orders. This is turn allows individuals to get good and quick fills on their orders and with lower spreads.
We have seen that the daily forex trading session begins with the Sydney session. During this session, there is lesser liquidity compared to other sessions. Just when the Tokyo or the Asian session begins, liquidity starts to increase as during this session traders from Australia, New Zealand, and Asia are active.
London session and the New York session are the time periods when liquidity and volumes are at their highest. Almost every bank has its trading desk in these cities as they are considered to be major financial hubs. Hence, during these sessions, traders are quite active.
When we have a closer look towards the timings of the sessions we can notice some overlaps in them where at that particular time two markets are functioning together.
During overlaps, volumes increase as traders from two different time zones are up and ready to look for opportunities in the forex market. There is an overlap between the Sydney and Tokyo session, between Tokyo and London session, as well as between the London and New York session.
The time period where the London and New York markets overlap i.e. are open at the same time sees the majority of the volumes. It is during this time window that traders and market participants are the most active.
What to trade?
Now that I have discussed the forex trading sessions, let’s move on to which pairs are to be traded in each session.
There are a couple of hundred countries in the world and a majority of them have their currencies. There are several currencies listed on the forex market but traders that actively participate in the forex market do not track all the possible currencies.
There are 8 major currencies - the US Dollar (USD), the Euro (EUR), the British Pound (GBP), the Japanese Yen (JPY), the Canadian Dollar (CAD), the New Zealand Dollar (NZD), the Australian Dollar (AUD) and the Swiss Franc (CHF).
We know that currency pairs are not traded standalone but are to be traded in pairs. On the basis of this list of major currencies, there are major currency pairs and minor currency pairs.
Major currency pairs are those pairs that include and US Dollar (USD) in them. Minor currency pairs are those pairs that are made up of major currencies other than the US Dollar (USD).
The best time to trade each of these currency pairs, both major and minor, is when their respective country’s markets are open for trading during the day.
Traders can always trade any of the currency pairs during any time of the day but each and every currency pair does not get complete attention from market participants throughout the day.
Traders can look to trade currency pairs that include the AUD and the NZD during the Sydney trading session, the JPY during the Tokyo trading session. All currency pairs that include these currencies can be traded during the overlap of the Sydney and Tokyo trading sessions.
Currency pairs including the GBP, CHF, and the EUR can be traded during the London trading session and currency pairs that include the CAD and the USD can be best traded during the New York trading session. Currency pairs of all these currencies are quite active during the overlap of the London and New York session.
These are the best currency pairs that can be traded in each of the sessions. USD being the strongest currency pairs can be traded during any of the 4 forex trading sessions as market participants from all countries are attentive towards this currency.
Which currency pairs do you trade?
I am sure that you now know the various currency pairs that can be traded in the different trading sessions that the forex market has been divided into. These sessions are not formally divided into sessions but are rather a result of the varying time zones of countries.
There are a handful of currency pairs that are most sought after by traders and they track the developments in these currency pairs. You can always choose which currency pairs to trade during each trading session, but there are some currency pairs that are best traded during one trading session but do not get that much during other sessions.
Let me know which currency pairs you trade during the various forex trading sessions and also what strategies you use.
Feel free to reach out to me through the comments section for questions or anything in general and I will get back to you for sure.