A Guide to the Forex Trading Sessions and Hours
The Forex market is the largest financial market in the world, with a daily volume ranging approximately between two-three trillion dollars! To become a successful Forex trader, one has to carefully study all the important aspects of the foreign exchange market. Among them are the different Forex trading sessions and what hours they trade. In this article, we will examine the various Forex trading sessions and the trading hours.
The Forex market is open 24 hours a day, five days a week and is made up of banks, different commercial companies, central banks, hedge funds, investment management firms, not to mention retail Forex brokers and investors around the world. In the Interbank Forex market, the majority of large international banks have multiple offices around the globe, so that they can pass their local clients' foreign exchange orders to an affiliated branch at any time during the 24-hour cycle.
This process would typically be executed in an orderly fashion at any hour of the working week, unless interrupted by a bank holiday. Banks would operate during regular business hours at each regional office, and the open trading book is passed onto another regional office usually in a later time zone.
During each Forex trading session, the city with the major financial hub in the relevant region is given the session title during their business hours. If you are trying to analyse the best time to trade Forex currency pairs, it is paramount to understand these different sessions and which currencies or markets are most liquid during those business hours, within a relevant Forex session.
The Forex Trading Sessions
The international currency market is not actually dominated by a single market exchange, but instead, entails a global network of exchanges and brokers throughout the world. Forex trading hours are based on when trading is open in every participating country.
The 4 major Forex trading sessions are as follows:
- New York
Minor sessions are:
- Hong Kong
The pattern tends to follow that as one major Forex market closes, another one opens. There are certain times that are more active and it's important to keep track of these. In the following sections, we will examine these different sessions and the best times at which to trade them in more detail.
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An Introduction to the Sessions
One of the greatest characteristics of the Forex market, as mentioned earlier, is that it is open 24 hours a day, 5 days a week. This means that investors around the globe can trade whenever they want to throughout the working week. However, not all times are created absolutely equal. There are Forex trading times around the world when price action is consistently volatile, and there are also periods when it is completely muted.
Multiple currency pairs display varying activity over different times of the trading day thanks to the general demographic of those market participants, who are online at that particular time. This pushes us to accept the major trading sessions in Forex as being directly interconnected with market hours.
Even though a 24-hour market offers a substantial advantage for many individual and institutional traders, as it guarantees liquidity, and a solid opportunity to trade at any possible time within the established Forex hours of trading, it is not deprived of certain pitfalls. Although different currencies can be traded anytime you wish, a trader cannot monitor a position for such long periods of time.
This implies that there will be Forex trading times when opportunities are missed, or even worse, when a jump in market volatility leads the spot to move against a set position when the trader is not nearby. In order to reduce such a risk, a trader has to be aware of when the market is most commonly volatile, and therefore decide what times are best for their individual trading strategy and style.
Typically, the market is separated into three sessions during which activity is at its peak: the Asian, European and North American sessions. More commonly, these three periods of Forex trading hours are known as the Tokyo, London, and New York sessions.
Such names are used interchangeably, simply because these three cities represent the key financial centres for each region. The markets are most active when those three powerhouses are conducting business - as the majority of banks and corporations make their daily transactions. There is also a greater concentration of speculators online.
The Asian, or Tokyo, Trading Session
When liquidity is restored to the Forex market after the weekend, the Asian markets are naturally the first to observe action. In other words, Forex market trading hours start there. Activity (although not officially) from this part of the world is actually represented by the Tokyo capital markets, which are live between 00:00 - 06:00 GMT. Nonetheless, there are a lot of other countries with considerable pull that are present during this period, including Australia, China, New Zealand, and Russia.
Taking into account how scattered those markets are, it makes sense that the start and end of the Asian session is stretched beyond the standard Tokyo market hours for Forex. In fact, to allow for these different markets' activities, Asian hours are frequently considered to run between 23:00 - 08:00 GMT.
The European, or London Trading Session
Later in the trading day, just prior to the Asian trading hours are coming to a close, the European session takes over in keeping the currency market active. This Forex time zone is very dense, and involves a number of key financial markets. London takes the honour of identifying the parameters for the European session.
Official business hours in London run between 07:30 - 15:30 GMT. This trading period is enlarged owing to other capital markets' presence (including France and Germany) prior to the official open in the UK, whilst the end of the trading session is pushed back as volatility holds until London closes. Therefore, the European Forex trading hours GMT are commonly observed as running between 07:00 - 16:00 GMT.
The North American, or New York, Trading Session
When the North American session comes online, the Asian markets have already been closed for several hours, but the day is only halfway through for European FX traders. The Western session is influenced by activity in the US, with a few contributions from Canada, Mexico, and other countries in South America. Not surprisingly, activity in New York marks the high in volatility, as well as participation for the session in North American Forex market hours GMT.
Considering the early activity in financial futures, commodity trading, and the visible concentration of economic releases, the North American hours non-officially start at 12:00 GMT. With a substantial gap between the close of the US markets, and the Asian Forex market opening hours, an interval in liquidity establishes at the close of the New York exchange trading at 20:00 GMT, because the North American session comes to a close.
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Overlaps in Forex Hours and Sessions
If a currency pair is a cross made of currencies that are most actively traded during European and Asian Forex market hours (such as GBP/JPY and EUR/JPY), there will be much a greater response for these pairs to the European/Asian session overlaps, and therefore, a less noticeable increase in price action during the European/North American session's concurrence. Still, the presence of scheduled accident risk for each currency will hold a significant influence on activity, regardless of the pair or its constituents' respective sessions.
Asian/European session overlaps are presented in pairs that are vigorously traded during Asian and European Forex markets hours. Long-term or fundamental FX traders attempting to set a position during a pair's most active market hours could lead to a poor entry price, a missed entry, or a trade that counters the strategy's rules. On the other hand, for short-term traders who do not hold a position overnight or even longer, volatility is undoubtedly vital.
Risky Market Hours For Trading
During low liquidity, usually when a market opens, and around 12 AM, there is a considerable risk when trading. Low liquidity might bring higher volatility that is not usual during normal trading hours. Professional traders do not recommend opening positions anywhere between 12-2 AM. Most of these high-risk times can put a trader's account at risk.
Risk factors include:
- Volatility spikes – Low liquidity might cause volatility spikes that can easily hit your stop loss
- Low liquidity – This is related to the Forex market's depth, and it impacts the ability to handle large transactions effectively
- Dealing spread – Spreads usually widen around 12 AM time
The Best Time to Trade the Market
We have looked at the worst times for trading Forex, but what about the good times? The first three hours of each major session are usually the best in terms of momentum, trend, and retracement. It is then that traders tend to find the best trading possibilities. Additionally, the TOTH (Top Of The Hour), the first and the last five minutes of each hour will usually provide volatility and spiky market movements.
Still find it hard to know which session you are in? Why not try the MetaTrader Supreme Edition plugin? With the handy 'Session Map Expert Adviser', you can see a clock with the current running Forex sessions.
Source: Admiral Markets MetaTrader 5 Supreme Edition - Session Map
When trading Forex, a market participant must first of all define whether high or low volatility will work best with their individual trading style. If price action is more important, trading the session overlaps, or just ordinary economic release times might be the preferable option. The following step would be to decide what the best times of day are to trade, given the bias for volatility. Those wanting high volatility, will need to identify which time frames are most active for the currency pair they are aiming to trade on.
When considering the EUR/USD pair, the European/North American session crossover will find the most movement. There are usually alternatives, and an FX trader should balance the necessity for favourable market conditions with physical well-being. If a market participant from the United States actually prefers to trade the active Forex trading session for GBP/JPY, for example, they will have to wake up very early in the morning to keep up with the market.
If this person also has a regular day job, this could lead to considerable exhaustion and mistakes in terms of judgment when trading. A much greater alternative for this trader might be trading during the European/North American session overlap, where volatility is still high. Additionally, a good knowledge of how to trade during the best trading hours, coupled with a basic understanding of FX trading sessions in general, can provide you with an advantage in terms of trading currencies properly.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.