Forex trading is open 24/7, but certain times of day tend to be busier than others. When two trading sessions overlap, liquidity increases rapidly among currency pairs.
These sessions include those held in Sydney, Tokyo and London.
The U.S. Session
Forex (Foreign Exchange Market), also referred to as an over-the-counter (OTC) market, is an international currency exchange market which determines foreign exchange rates. Operating nonstop five days a week except certain holidays and weekends when certain dealers or brokers may close down trading, Forex is open 24 hours per day worldwide with some holidays being closed off temporarily due to market demands.
The U.S. session kicks off at 8:00 am EST as traders arrive from around the globe. This session is the most crucial for global markets as it involves the world's largest economy and most liquid market with approximately 17% of all forex transactions taking place there alone. Some traders refer to this session as the North American Session because other major financial centers such as Canada, Mexico and South America also participate.
As most trades involve dollars, most economic reports are released during this session - often times directly impacting trading activity and volatility levels. Therefore, traders should keep an eye out for any news events which might increase volatility or liquidity during morning sessions in the U.S. - such as political or economic data announcements.
After New York markets close, London session takes over for the rest of the day and most trading takes place between Euros and US Dollars; during this time London and New York sessions overlap in roughly 50% of trades conducted worldwide.
At this time, there is typically high volatility and liquidity; however, during the afternoon this tends to subside as European traders take their lunch breaks and return home. Furthermore, Friday afternoon tends to see little activity since Asian traders tend to gather at karaoke bars while European traders flock to pubs to watch soccer matches; making this an excellent time for short-term traders looking for success on Wall Street.
The Tokyo Session
As soon as liquidity returns to the currency market at the start of each week, Asian markets become active again. Tokyo capital markets play a pivotal role in this session which runs from midnight until 6 a.m. Greenwich Mean Time (GMT). This period marks peak trading activity for Japanese Yen pairs - popular choices among traders using currency-focused strategies.
The European session begins shortly after Asian one concludes, with a high concentration of economic news releases driving price action. Decisions by the European Central Bank can create considerable volatility for EUR/USD pair trading; during this session AUD/USD trading also sees significant activity.
This session of the day is the busiest of them all, with London and New York markets meeting up for some hours of trading activity between 8:00 am and 12:00 noon, when most trades take place.
Keep a few key factors in mind when trading during this overlap between London and New York sessions. While you can make profitable trades at other times of day, these usually come with reduced liquidity levels and wider spreads compared to when London/New York overlap occurs.
Consider that forex trading can be affected by holidays and events in different countries across the world, including bank holidays in the US and Europe, major sporting events and religious celebrations. Also keep an eye out for changes in daylight saving time between October-November and March-April when various nations transition between seasons of daylight savings time use.
Forex market sessions vary across four primary regions - US, Tokyo, London and European. Each session possesses its own distinctive qualities that you need to understand if you wish to find profitable trading opportunities and improve overall profitability. As your knowledge increases about this marketplace, the better at trading it you may become - best of luck!
The London Session
Forex trading stands out among other financial markets by remaining open 24 hours per day, five days per week. This is due to not trading through a central exchange but instead through an international network of computers which enables traders to trade at any time from anywhere around the globe.
The London session begins at 8am UK time and accounts for an estimated one third of daily forex transactions worldwide (estimated to be around PS2.1 trillion per day). Due to its higher volatility and liquidity than other sessions, London can be one of the best times of day to trade.
Two hours after Tokyo closes, European and London sessions overlap briefly for a period. At this time, London market often experiences lower spreads as traders seek out opportunities for profit. European market accounts for one fifth of total foreign exchange transactions worldwide making it an integral component of forex market.
North American Session in New York opens at 8:00 AM and remains active through 5:00 PM, being an exceptionally active part of the forex market that typically sees significant trading volume among major currency pairs.
After the North American session concludes, Asian and European markets converge again - this phenomenon is known as London/New York Overlap and can be one of the busiest periods for forex trading. New York and London markets account for half of all forex transactions so the overlap often sees high trading volumes and volatility levels.
Forex traders should be aware that the forex market will be closed on Christmas Day and Boxing Day - public holidays in Canada, Europe and Australia - as well as some bank holiday weekends. In order to trade during these times you will require an FX broker with flexible trading hours.
The Asian Session
The Asian session of the Forex Market is widely recognized as one of the optimal times to trade currency pairs, however its low liquidity and wide spreads make trading challenging for new traders, especially European-based traders who must wake up before 00:00 GMT in order to join this session.
Asian session trading volume is usually driven by Japan and its major banks, making the Yen an extremely popular currency pair to trade. Japan's economy is highly cyclical, so the Yen's volatility often responds quickly and decisively to any economic news or developments - this makes for an ideal trading session if your goal is profiting from short-term movements in currency value.
At the start of each week when liquidity returns to the currency (or FX) market, Asian markets tend to experience movement first. Unofficially, Tokyo capital markets represent this activity from midnight to 6 am GMT but there are numerous other important markets from around the globe operating during this timeframe as well.
Once the Asian session concludes, London and then New York markets step in to keep the market active. These two trading centers make up a substantial part of global Forex trading activity and are widely considered among the most important financial centers worldwide; their combined share in trading accounts for over 50% of all global forex transactions.
Although Asian and European sessions overlap at times, which creates higher levels of volatility during these overlaps. Although most impact is typically limited to morning hours, some traders choose to trade during European or North American sessions in order to capitalize on peak activity times; those looking for diversification should also consider trading during Asian or Tokyo sessions as these can provide invaluable diversification benefits.