forex basics

Forex Trading Sessions

I know that the forex market is open for trading throughout the day but it does not mean that traders stay up trading forex the entire day. There are certain time windows or sessions each day during which the majority of trading activity takes place. In this blog post, we will discuss these sessions.

 

At the end of the blog post, I will mention the importance of these sessions. Stick around till the end to know how you can use these sessions to your advantage.

 

The forex market is a decentralized over-the-counter marketplace for the exchange of foreign currency. This forex market is not situated at a central physical location but rather is traded over an Electronic Communications Network (ECNs) which is an inter-bank network.

 

The forex market is open 24 hours a day for 5 days a week, staying closed on weekends i.e. Saturday and Sunday. Participants can trade forex on the forex market throughout the day.

 

The forex market is the sole market for the exchange of foreign currency. The world we live in has been becoming more global as time passes, hence foreign currencies have gained significant importance. Foreign currencies are exchanged for various reasons, business, investment, speculation, tourism, and even by governments.

 

The entire world does not rise and sleep according to one standard time zone, there are traders in one part of the world that wake up earlier than the rest. Hence the forex market is open throughout the day in order to cater to the requirements of traders all over the world.

 

Since the forex market is not a physical exchange for foreign currencies, it functions on a network of banks and exchanges situated in various countries. Hence when markets of the countries open, the forex markets open too.

 

At any given point there is at least one country whose markets are open, hence the forex market is open to trading throughout the day. A typical trading day of the forex market begins with the opening of the Australian market and ends with the closing of the American markets.

 

What are forex trading sessions?

The forex market is open for trading throughout the day but it doesn’t mean that traders are present in front of their terminals the entire day in order to trade. Hence traders have divided the entire day of trading of the forex market into sessions.

 

The forex market timings can be broken down into four trading sessions – the Sydney session, the Tokyo session, the London session, and the New York session.

 

These sessions are listed according to the order in which they open. Sessions are named by the major city’s markets open during that time period. Hence, forex trading beings with the Sydney session and ends with the New York session.  

 

Even though the forex market trading hours are divided into 4 sessions, each of these sessions does not experience the same amount of activity taking place during these hours. There are 3 major sessions that experience the peak activity:

1. Asian forex session (Tokyo)

 

Asian forex session

 

In this session markets of countries like Australia, China, New Zealand, and Russia begin their trading sessions. At the start of each week, market participants begin their activities from this session. This session is considered to be in action from 11 p.m. to 8 a.m. GMT. The Asian session is the third most active session contributing to around 16% of total forex volumes.

 

2. European forex session (London)

 

European forex session

 

In this time period markets of major countries like the UK, Germany and France begin their trading session. Trading hours of the European session begin at 7 a.m. and end at 4 p.m GMT. There is an overlap in timings of the Asian and European sessions. This overlap leads to a spurt in the volume of trading orders.

 

This session is considered to be the most active forex trading session as a lot of volatility is seen in this time period. This session contributes to roughly 43% of the total daily volume. Every major bank has a trading desk situated in London due to it being a major place in view of the forex market.

 

3. North American forex session (New York)

 

North American forex session

 

The North American forex trading session is dominated by the US as New York is considered to be an important financial hub. This session begins at 12 noon and ends at 8 p.m. GMT. This session is the second most active forex trading session as it contributes to 17% of the daily volumes.

 

The European and American sessions make up for 60% of the total daily forex volumes, hence traders are very active during these sessions. The overlapping of these sessions is the most active time period and is quite volatile.

 

Importance of the forex trading sessions

These sessions are not created by an authority as such but rather are just specific time periods during which market participants are much more active in the forex market. This is because of the obvious reason of varying time zones, hence when traders in a major country get to work they are heavily involved in forex trading.

 

importance of forex trading sessions

 

There are often questions asked regarding which session is the best to trade forex, or which session should one trade. There is no definite answer to this. Each session has its own characteristics.

 

We know that the daily forex trading session starts with the beginning of the Asian markets. This is the session in which liquidity and volumes begin to rise up. The Asian session is relatively less volatile.

 

Currencies like the Japanese Yen, New Zealand Dollar, Australian Dollar, etc are highly traded as any overnight happenings or news will be factored into the price of these currencies. The remaining currencies do not experience much movement.

 

As the Asian session close is nearing, the European session is starting. This session is the most active session as market participants keep a close eye on London. It is in this session that trends are initiated or reversals in the price of currency pairs take place.

 

The overlap between the Asian and European session provides a spike in volatility as traders on the complete East look to enter into positions during the European session. All European currencies are actively traded during this session.

 

The latter end of the European session overlaps with the opening of the American forex trading session. Till this moment of time, almost all traders around the globe are active, hence this time period is the most active and volatile.

 

The United States being the major country in the global space has lots of influence on the remaining countries hence affecting all foreign currencies. During this session, all currency pairs are traded actively in huge volumes.

 

As the American markets are close to shutting down, volatility and liquidity also decline. There is a gap between the close of the American market and the open of the Asian market and in this gap very less transactions take place.

 

Which sessions do you trade?

I am sure that by now you know about the various currency pairs that you can trade in the forex market and the various sessions that the trading is divided into.

 

If you have already been trading forex, do let me know which session do you look to trade and what strategies you use.

 

Do share this blog post with others and feel free to reach out for any questions, queries, or anything in general.

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