Know all about forex market hours and Trading Sessions
Timing is a very important factor and a key strategic component in every aspect of life. The famous saying “To everything, there is a season” simply mean to do the right thing at the right time.
Everything in the world of finance including the financial market does revolve around time and price. It is common to know that the prices of things, in general, are usually affected by seasons hence the term ‘Time and Price’.
The Foreign exchange market is known to be the largest financial market in the world with an average daily turnover of 6.5 billion dollars. The market is always open for retail trading 24 hours and 5 days a week (Monday to Friday) thus presenting a lot of opportunities for forex traders to extract or capture unlimited amount of pips and make a lot of money but to be a profitable forex trader, irrespective of the trading strategy that is applied, timing (knowing the right time to enter and exit a trade) is just as important as the trading strategy.
This article, therefore, presents an in-depth insight into the forex market hours highlighting important concepts such as the sessions that makes up the market hours, the session overlap, the daylight savings time, the three-session system and many more important facts that forex traders must know.
An overview of the forex market trading hours
The forex market consists of a few categories of participants, this includes the central banks, commercial banks, hedge funds, mutual funds, other funds, accredited Investors and retail Forex traders from all over the world. The forex trading sessions are assigned the name of the city that has the major financial hub in the relevant region around the world and they are most active when these financial powerhouses have ongoing foreign exchange activities with banks, corporations, investment funds and investors.
Understanding the forex market hours
There is always one active trading session, so when trying to analyze the best time to trade the forex market, it is important that traders understand the different sessions and the corresponding markets or currency pairs that will be most liquid and volatile.
Let's look at what makes up the 24 hours of every trading day.
The 24 hours of the forex market has four major trading sessions that amount to 75% of the global FX turnover. The constant recurring pattern is that, as one major forex session approaches, the previous session overlaps with the beginning of the new trading session.
There are four trading sessions but three of these sessions are referred to as the peak trading sessions because they usually have the bulk of the volatility for every trading day. Therefore, the hours of these trading sessions is of great significance to forex traders to open trade positions rather than attempt to trade every single hour of the day.
The Sydney trading session:
New Zealand is the region where the International Dateline starts, which is where every calendar day begins. Sydney in New Zealand is the city with the most financial hub in the Oceania region and thus lends its name to the first major session of the day. In addition, it is the trading session that begins the days of every trading week.
The 3 peak trading sessions of the forex market
The 24 hours of a trading day has three sessions of peak trading activities. It is important that traders focus on one of the three peak trading sessions, rather than attempt to trade the whole 24 hours in a day. The three peak trading periods are the Asian session, London session and Tokyo session. In addition, there are also sessions overlap where the market is most liquid and volatile hence they make the most ideal trading hours of the forex market.
- The Asian trading session:
Also known as the Tokyo trading session, is the beginning session of peak trading activities every day in the forex market.
As the name implies, the session has most of its trading activities primarily from the Tokyo capital markets with other locations such as Australia, China and Singapore contributing to the volume of financial transactions during this period.
There are a lot of transactions taking place in the Asian market during this session. The liquidity might be low sometimes, especially when it is compared to the London and New York trading session.
- The London trading session:
Not just being the centre of Foreign exchange transactions in Europe, London is also the centre of Foreign exchange transactions worldwide. Every trading day, just before the close of the Asian Forex session begins the London session (including the European session). The London session starts off overlapping the late hours of the Asian session before taking over the foreign exchange market.
During this overlap, the financial market is very dense and involves a number of key markets and financial institutions in Tokyo, London and Europe. It is during this session that the majority of daily Forex transactions take place resulting in an increase in the volatility and liquidity of price movement. Therefore, London session is considered the most volatile forex trading session because of the high volume of trading activities seen within that period.
- The New York trading session:
At the start of the New York session, the European forex market is only halfway through when the Asian trading activities are over.
The morning hours (London and European trading session) are distinguished by high liquidity and volatility, which tend to decline in the afternoon as a result of the decline in European trading and the North American trading activities begin to gather momentum.
The New York session is mostly dominated by foreign exchange activities in the US, Canada, Mexico and a few other South American countries.
Session overlaps in forex trading
Obviously, there are periods of the day where the open hours and the closing hours of the different trading sessions do overlap.
Forex transactions always experience high volume of trading activities during session overlaps, simply because more market participants from different regions are active during these times thus giving rise to high volatility and liquidity. The awareness of these sessions overlap is an advantage and an edge to forex traders because it helps to know what times of the day to expect volatility in the relevant forex pair and it presents very opportunistic and profitable timeframes for forex traders to easily make a lot of money
There are two major overlapping sessions of a trading day that represent the busiest hours of the forex market
- The first overlap in a trading day is the Tokyo and London session overlap at 7:00-8:00 AM GMT
- The second overlap in a trading day is the London and New York session overlap between Noon 12 - 3:00 PM GMT
Dealing with Daylight Savings Time
Interestingly, the duration of these forex sessions varies with season. During the month of March/April and October/November, the opening and closing hours of the forex market session in some countries like the US, UK and Australia usually change by shifting to and fro Daylight Savings time (DST). This gets even more confusing because the day of the month when a country’s time may shift to and fro DST also varies.
The only forex market session that remains unchanged all year is the Tokyo (Asian) session.
There are some other distinctions. For example, traders might expect that Sydney's open will move only one hour back or forth when the US adjust for standard time. Traders must understand that seasons are opposite in Australia meaning that when time in the US shifts one hour backwards, time in Sydney will shift one hour forward.
It’s important to know that the forex market will have changing hours and DST must be dealt with during those seasons.
Caution
The best and worst times of day to trade Forex may be subjective to your preferred trading strategy and may also depend on the pairs that you trade.
- As we highlighted in the previous section, traders who require high volatility should focus on trading forex pairs during the relevant market overlaps or peak trading sessions.
- Another important time to be cautious about in the forex market is the build-up, and directly after, important economic announcements, such as interest rate decisions, GDP reports, employment figures like the NFP, Consumer Price Index (CPI), trade deficits, and other high to medium impact news reports. Political and economic crises can develop and could thus slow trading hours or spike volatility and trading volume.
- There are also times of low liquidity that are not good for anyone and there are certain times during the trading week when these conditions tend to be prevalent. For example, during the week, there tends to be a slowdown in activity at the end of the New York session before the start of the Sydney session - as the North Americans stop trading for the day whilst the Sydney region forex activities is just about to commence.
- The same applies to the beginning and the ending periods of the week accustomed to quiet price movement and low liquidity as traders and financial institutions go on weekend breaks.
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