Forex Trading Sessions

Forex Trading Sessions

What are forex trading sessions?

The foreign exchange (forex) market is open 24-hours a day, 5 days a week. It’s the most liquid market in the world. What ‘most liquid’ means is it’s the most active in terms of high volume traded and frequency of trades. Major currency pairs can be bought and sold quickly and easily without causing a substantial change in its exchange rate.

That’s all well and good, but your average forex trader can’t sit at his computer 24/5 watching charts and placing orders. No problem. Forex traders have the choice of several trading sessions and choose their forex trading times to suit their trading needs.

Three trading sessions get headline attention, driven by three powerhouses that push the greatest volume. You get to pick and choose which trading sessions to jump into based on your trading strategy.

In this article, we identify the three most active forex trading sessions and give good tips on the best times to trade forex.

North American Trading Session (New York Open)

GMT      12h00 to 20h00

EST        08h00 to 16h00

BST        13h00 to 21h00

SAST      14h00 to 22h00 (South African time)

About 1 in 5 (17%) forex transactions are traded during the North American trading session, otherwise known as the New York Open. The Asian session has been closed for a few hours and the European session is mid-way. It’s the start of a new day in New York, home to the largest stock exchange in the world.

Besides the New York Stock Exchange (NYSE), major financial centres in North America are also open. This includes NYSE Chicago and the Toronto Stock Exchange (TSX).

You can trade almost every one of the G10 currency pairs when New York is open for business. It’s particularly exciting when the New York and London trading sessions to overlap and trading volumes are at their highest. There is about a 3 to 4-hour trading period when liquidity is highest in these two trading sessions.

If you’re trading from Europe or Asian, you’ll be paying close attention to the New York session because, in the majority of trades, the US Dollar (USD) is the base currency. Traders will also be closely watching what the USD is doing when economic reports or breaking news are released in the morning (Eastern Time).

Tips for trading during the New York forex trading session

  • Liquidity is highest in the morning because it overlaps the London Open
  • Volatility is highest in the morning because most economic reports are published online in the morning, at the start of the New York Open
  • Liquidity tapers off in the afternoon once the European session closes
  • Friday is the quietest day; however, there is always the chance of reversals in the second half of the session when US traders close positions ahead of the weekend to limit exposure
  • The forex market experiences another peak Asian Open and London Open overlap; this is middle of the night Eastern Time and early morning GMT; automated trading becomes important when New Yorkers are sleeping

European Trading Session (London Open)

GMT      07h00 to 16h00

EST        03h00 to 12h00

BST        08h00 to 17h00  (London time * account for daylight saving hours)

SAST      09h00 to 08h00 (South African time)

When the European trading session (London Open) opens up, Asian Open is closing down and New York Open is mid-way.

The European trading session covers a broad base of financial centres but it is the London market that the majority of traders focus their attention on. This is why this trading session is also called the London Open.

Other major financial centres open in Europe at this time include Paris, Amsterdam, Geneva, Zurich, Frankfurt, Hamburg, Luxembourg and Edinburgh.

About 2 out of 5 (43%) forex transactions are traded during the European trading session. London is a dominant financial region largely due to its location. Because of its time zone, London in the morning overlaps with the Asian and New York trading sessions in the afternoon.

The highest volatility in the London Open is when London and New York trading times overlap. There is a 3 to the 4-hour period when liquidity is highest when the two sessions boost trading volumes.

The best thing about the London Open is the market is wide open because liquidity is so high. You can trade almost any currency pair, from the majors to the minors. And because London Open overlaps with the Asian Open, you can also look at trading the Yen crosses. The most popular crosses are EUR/JPY and GBP/JPY.

Tips for trading during the European/London forex trading session

  • London Open is characterised by high liquidity and potentially lower transaction costs because its trading time overlaps with New York Open and Asian Open; potentially delivering lower pip spreads
  • London Open is usually the most volatile because of the large number of transactions that take place due to the overlap with New York and Asia; volatility tends to level out in the middle of the trading session because many traders take a break before the New York session begins
  • London Open typically starts a trading trend and it plays out in the New York Open
  • Watch out for reversals in the second half of London Open; it’s likely to happen when European traders decide to lock in profits

Asian Forex Trading Session (Tokyo Open)

GMT      23h00 to 08h00

EST        19h00 to 04h00

BST        24h00 to 09h00 (London time * account for daylight saving hours)

SAST      01h00 to 09h00 (South African time)

Japan is the third-largest trading centre in the world and the Yen is the third-most traded currency in the world. The Yen occurs in about 1 in 5 (17%) forex transactions and overall, 20 percent of forex trading volume takes place during the Asian (Toyko Open) session. It’s not surprising then that the Asian Open is such an important trading session.

The three major financial centres that dominate the Asian Open are Tokyo, Hong Kong and Singapore. The Asian trading session may soon be referred to as the Singapore Open because these days, more forex trading volumes go through Singapore.

Combined, Singapore and Hong Kong generate almost 8 percent of overall trading volume while Tokyo accounts for 4.5 percent.

Tokyo Open experiences the highest liquidity at the start of their trading week. That’s Sunday evening at 17h00 EST (09h00 GMT) in New York and close to midnight on Sunday evening in London at 10h00 BST.

Tips for trading during the Asian/Tokyo forex trading session

  • Tokyo Open is usually most active early in the day after economic reports and data have been released
  • Keep your eye on forex activity in Hong Kong and Singapore, even Sydney which hots up during the Asian trading session; Tokyo’s not the only market to watch these days
  • Liquidity in the Asian trading sessions is not as high as the New York and London trading sessions, mainly because the Asian economies are export and banking dominated; these sectors don’t experience the same level of volatility as saying the high-tech and commercial services sectors do on other stock exchanges

Forex trading sessions and trading styles

Forex trading revolves around liquidity and volatility. Likewise with market trading sessions.

The trading style you adopt largely depends on your appetite for risk and to gauge that, you need to know more about the liquidity and volatility characteristics of the different forex trading sessions.

New York Open and London Open are typically highly liquid sessions whereas liquidity on Asian Open can be thin or illiquid.

Liquidity increases when sessions overlap. This is when things really hot up in the forex market and traders start to make big moves. The New York-London overlap is particularly exciting while the Tokyo-London overlap doesn’t see much movement.

Liquidity versus volatility in trading sessions

High liquidity generally creates less volatility in the forex market, mainly because prices do not fluctuate significantly either way. Thin liquidity often results in high volatility where traders see more drastic price movements.

A characteristic of the forex market is it’s highly liquid and prices typically move in smaller increments. When many traders around the world are trading forex at the same time and volumes are high, this tends to flatten out the extreme highs and lows of currency pairs. For this reason, a highly liquid market like forex is also known as a deep market or smooth market.

In contrast, thin liquidity or rather an illiquid market can experience more chaotic moves because buying and selling volumes vary significantly. If a liquid market is called smooth, you can call an illiquid market choppy.

Most forex traders – particularly beginner traders – prefer a smooth, liquid market because it’s easier to manage risks. They don’t find themselves bearing the brunt of drastic price moves that periodically occur in illiquid markets.

In summary

The forex market is the largest and most liquid market in the world. You can trade every hour of the day for five days a week. Obviously, you won’t or can’t. Unless you’re using trading robots, you need to pick the best time to trade forex and that largely depends on your trading strategy.

New York Open, London Open and Asian Open are the three main trading sessions. They dovetail each other nicely and factors like time and location create unique trading opportunities. New York and London trading sessions are highly liquid, particularly when they overlap. By contrast, the Asian trading session’s liquidity is thin (some even say boring).

The New York and London overlap is one of the most exciting forex trading sessions. It has the heaviest volume of trading which creates great trading opportunities. New York Open and London Open generally offer traders who know what they’re doing a smooth ride because liquidity is high and volatility low most days.

Experienced forex traders know the best time to get in front of your computer and start trading forex is when the market is pumping. For beginners, high liquidity with enough volatility to make gains but not burn yourself is ideal.

If you can time it to catch the overlaps, even better. You get higher price ranges during trading overlaps and that means better trading opportunities.

 

FTA DISCLAIMER

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. Forex trading involves a high degree of leverage which increases the risk associated with forex trading.

 

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