About the three major FX trading sessions
The optimal time to trade the forex (foreign exchange) market is when it’s at its most active. When trading spreads (the differences between bid prices and ask prices) tend to narrow. In those situations, less money goes to the market makers facilitating currency trades, which leaves more money for the traders to pocket personally.
The London, US, and Asian sessions are three of the 24-hour forex market’s significant sessions. Each significant geographic market center has its own set of characteristics that may help traders execute strategies at any time.
Even though the forex market is the most liquid of all asset classes, there are occasions when volatility is stable and others when it is high. The various forex session times might benefit a forex trading strategy’s dependability.
This article will look at these forex market sessions in detail, including their key features.
The main forex trading sessions
Typically, the forex market is divided into three market sessions: the Asian session (Tokyo), the European session (London), and the US session (New York). The forex market is highly functional/dynamic during these trading sessions since big banks, institutions, and retail traders are active. Forex traders may use this data to help them construct their trading strategies by noting the particular periods of each trading session.
The Tokyo session is the first to begin. Many significant players use trade momentum in Asia to create their strategies and utilise it to predict future market conditions. The Asian trading session accounts for around 6% of all global FX transactions.
The London forex market is the largest and most important globally, with a 34% share of the global daily forex volume. Because of its market share, most of the world’s central banks have their trading rooms in London. The high quantity of participants in the London forex market and the immense value of transactions give this session higher volatility than the other two sessions.
The flood of money pouring into London may substantially raise the ‘average hourly move’ of major currency pairs such as EUR/USD.
The New York Stock Exchange (NYSE) is the world’s second-largest trading market, handling about 16% of all forex transactions. Transactions in New York slow down after the US/Europe overlap as liquidity decreases and European traders leave the forex market.
What is the best time to trade?
Over the last ten years, European currency pairs have outperformed those traded during other hours. As previously said, liquidity is scarce during this time since the US session has little/no impact. This decreased liquidity allows for range-bound trading techniques that utilise more indicators like RSI.
Traders who enjoy ranges, buying at support and selling at resistance, can consider trading the European currencies during the late US session into the Asian session (19:00-07:00 GMT).
Traders who like breakouts and trends should consider trading when Europe goes offline at 8 a.m. (GMT) to when it comes back on again (08:00-17:00GMT). Trading Asian currencies (AUD or NZD) during the Asian session might also provide some breakouts because these home currencies are active on corporate day.
If you try to trade breakouts of European currencies during the Asian session, you’ll probably be disappointed since those markets don’t move as much since they’re ‘off hours’ for those currencies.
In general, determining the ideal forex trading session for your particular approach, lifestyle choices, and other time-related limitations such as another job might be challenging and unique to each trader.
Nonetheless, in many cases, a trader may benefit from analysing the time-dependent liquidity and volatility profiles of each currency pair they might be trading and optimising them for their trading strategy and situation.
While there is money to be made and plenty of room for growth, many similar opportunities come with a lot of danger. As a result, educate yourself carefully.