The Forex market is considered the largest market in the world finance system. The reason for that is its daily traded volume. It is ranging in average more than three trillion dollars on a daily basis. This market is also very competitive, therefore each trades has to take into account all the aspects to become successful. Besides the factors that are related to trading strategies, forex brokers and risk management there is another one related to Forex trading sessions and hours when they are traded. Further, we will reveal the specifics of trading sessions and mention how to use it in the trader’s favour.
The Forex market is open 24 hours a day and 5 days a week. It does not have any clearing periods like stocks and futures markets do. Among the market participants, there are various banks, hedge funds, different financial companies, investment management firms, and many others. These are all the Tier-1 institutions. Next ones are the retail Forex brokers or some investors that have direct access to the Forex market due to very large trading volumes.
The ‘big’ Forex is usually related to the Interbank. The majority of large international banks have offices all over the world (though operated under different local entities). The orders of the clients of these banks can be forwarded to the foreign exchange at any time during the 24-hour cycle.
When every Forex trading session takes place, the city with the largest financial hub in the local region is given the session title during its business hours. When you are improving your trading skills and analyzing the best timing for entries and exits, it is obligatory to define these sessions and to learn which currencies or markets are involved in terms of highest activity and volatility during those business hours.
The Forex Trading Sessions
The main feature of the Forex market is that it is not centralized like some stock exchange and on the contrary, it represents a fairly global network of places where entities like banks and brokers can exchange one currency into another and manage their exposure. These companies are located in different parts of the world.
The 4 main and well-known Forex and finance in common trading sessions are as follows:
- New York
Though the sessions are not limited only with the mentioned above financial capitals. Minor sessions are also held in the following regions and cities:
- Hong Kong
Usually, it is easy to spot those trading sessions alternate and when one Forex session closes, another one opens. The main idea behind the sessions is that there exist specific times that are considered more active. It’s highly important to track them during trading activity. Further below we will expand in more detail these trading sessions and define the best times that allow exploiting the benefits of them for lucrative trading.
Basics of Market Hours
One of the main benefits of the Forex market is that it is available for trading 24 hours per day and five days a week, as stated above. It allows investors all over the world to trade whenever they are willing to do it during business days. Though they do not need to worry about the fact that the market might be closed, however, not all hours are considered equal to each other.
It should be stated that there exist periods during the day when volatility comes into play, and on the contrary, there are also hours when the market is almost silent and moving with very low activity and in a tight range.
It is obvious that various currency pairs show different market activity over different periods of the day. People tend to trade and exchange local currencies during their local business time periods. This makes us accept the fact that major trading sessions from the list above are strongly correlated with market hours.
Despite the fact that 24-hour opened Forex market gives a certain advantage for many traders, both individual and corporate, there still exist some pitfalls. Some pairs that also called majors like EUR/USD, USD/CAD, USD/JPY and some others guarantee liquidity, and a possibility to trade it at any time without having big slippage if a decision to open a position was taken. But at the same time, it is impossible for a trader to monitor his opened positions for these or any other pairs 24 hours a day.
It means that during some Forex trading times some good entry opportunities might be missed. But the worst scenario is when some obstacles may drive the market against opened positions and the trader will not be able to stop it because he is not nearby. To reduce or sometimes even eliminate this kind of risk, a trader has to follow the risk management rules or take into account the times when the market has the highest volatility, and probably close the position beforehand or at least to close it partially.
Typically, the market is divided into three major sessions which represent the highest trading activity: the Asian, the European and American sessions. More familiar will be to split these 3 periods of market activity into Tokyo, London, and New York sessions.
These names could be interchanged due to the fact that the mentioned above cities simply represent the major financial capitals for each of the region. The basic point is that markets start being active are going into their local business hours. It is also accompanied by the fact that the majority of banks and other financial institutions start making their daily operations.
Tokyo (Asian) Trading Session
The very first session that comes into play after the start of the day is the Asian one the financial centre of which is Tokyo. This is also the first one that opened after the weekend, therefore traders should pay attention to the market behaviour during it to overview the sentiment according to the events that occurred on Saturdays and Sundays.
Trading from this side of the world in terms of volume mainly happens on the Japanese market which trading session is opened between 00:00 – 06:00 GMT. Despite this fact, there are some regions that also add volume. Among them is Singapore and, of course, China that is getting more and more liquid for the last decade and is really becoming a separate financial region with the centre in Shanghai.
Usually, the start of the Asian session defines the direction till the start of the London trading session. The Tokyo trading hours usually do not represent high volatility because of the lower volume in comparison to European and North American sessions that are considered the most liquid. Many traders use it in their trading strategies like mean reversion or calm scalping.
Sydney (Australian) Trading Session
This session for the majority of its length overlaps the Asian session because the action takes place in the same world region. Though the volume is lower than on the Tokyo market, it is also taken into account because Australia is the largest supplier of gold and the Australian Dollar is considered a major pair against USD.
Besides gold, there are also other commodities like copper that is traded on the Chicago Mercantile Exchange and is also affected by trading activity during this particular session. Though being a separate continent, New Zealand is also referred to the Sydney trading session. This country with its New Zealand Dollar is considered as a strong economy with a large percentage of export activity.
London (European) Trading Session
Right after the end of Asian and Australian sessions, the European region takes over and large volumes come in. Last hour of the Tokyo session even overlays the start of London session so there is no drop in the trading activity. The current time zone is very populated in terms of involved countries and therefore involves a number of solid and liquid financial markets. But still, London takes the leadership of identifying the direction for the European trading session.
The business hours in London start at 07:30 and last till 15:30 GMT. The current trading period is increased due to the fact that several other capital markets like France and especially Germany are opened. They are not separated from common London session though the local markets of these countries also add a lot of volume due to their strong economies.
New York (American) Trading Session
The American session is related mostly to the region of North America and the United States particularly. This is the largest market in terms of liquidity and presence of various financial institutions like banks, hedge funds and the Federal Reserve being a Central Bank of the US.
Some contribution is added from Canada and Mexico, that are also located in North America as well as some other countries in South America. Brasil is the leading economic centre of South American region and is also a part of BRICS that is the acronym associating five major emerging national economies: Brazil, South Africa, India, China, and Russia.
Though being opened during almost the whole day, the Chicago Mercantile Exchange (CME), located in the United States, gains the volume growth during this trading session. Taking into account the early activity in futures and commodities trading on CME, and the concentration of some macroeconomic releases, the American trading hours start at 12:00 GMT.
With a continuous gap between the close of the New York session and the start of the new day on Asians markets, the interval in terms of liquidity occurs at the close of the New York Stock Exchange (NYSE) at 20:00 GMT, due to the fact that the North American session comes to its close.
Forex Market Hours Indicator
Though professional traders usually remember the starting and ending hours of every major session, less experienced trades need some help with it. It is hard to keep in mind all the above-mentioned information therefore we have developed a Forex Hours Indicator for MetaTrader 4 terminal that will calculate the sessions automatically.
There are set up Tokyo, Sydney, London and New York sessions in the form of the bars. It is easy to interpret and the key periods of market activity related to the trading hours can be displayed directly on the chart so you will never miss it.
The indicator is pretty feature-rich so you can disable some sessions if there is no need to monitor them. The starting and ending hours can be adjusted to add some offset or to exclude/include the premarket and postmarket hours of the related exchanges.
The colours of each block that represent the trading sessions could be adjusted for both background and the label with the session name. The fonts and their sizes could also be changed to desired so it will be possible to adopt the indicator to small and large windows of the trading terminal.
Another feature is the ability to send desktop and mobile alerts when the sessions start. It is handy because the indicator might be opened only in one tab of the terminal and the trader can occasionally miss the start of the session. Though the indicator will send an alert with the reminder right at the beginning of each session so the trader will be notified in any case.
One of the crucial benefits of the indicator is the ability to draw the starts of the session directly on the chart in the form of lines at the open price of the bar. The open prices of the sessions usually act as support and resistance, being a really powerful tool when used in some day trading strategies or paired with some other indicators.
On the chart above you can clearly see some rejections from the open session prices. Moreover, the potential trading setups have tight and obvious places to locate stop-loss orders therefore it will be easy to fulfil the risk management rules.
Talking about the risks, it is important to mention that during low liquidity, usually when an Asian session opens, and after the close of the North American session, there is a certain risk when placing trading orders. Low liquidity might lead to higher volatility. During regular trading hours, the volatility is low and might increase only during some macroeconomic events.
Among the risk factors there are:
- Spread – they usually widen during the mentioned above periods when no session is active
- Order rejection – some liquidity providers make their clearing operations that may lead to rejected orders
- Volatility spikes – the spikes (also called wicks, representing candles with long tails) may occur due to low liquidity and hit the stop losses of traders
- Slippage – low liquidity besides the widened spreads can also cause slippage when the orders are executed
Among the most suitable hours for trading, there are definitely the first hours of each session. Professional traders usually claim it the best because of market activity and momentum. There is even a famous strategy called ‘London Breakout’ that is related purely to the open of the European session and may allow to take advantage from the fast directional movement.
When trading any asset including Forex pairs, all the traders must at the very start define which market volatility (high or low) will be more suitable for their trading strategies. If the investing approach is chosen then less attention is required to the trading sessions but for other trading styles from swing and below it is almost vital.
The next step is to decide what would be the best time to execute the trades. Strategies requiring more stepper movements should be applied during Asian sessions while more active ones are more suitable for European and American trading hours.
It is also important to take into account the local affiliation of the instrument. For example, the GBP/USD pair represents the relation of the British Pound and the United States dollar, therefore the London and New York sessions are should be chosen.
For more proficient trading the sessions monitoring should be consistent and therefore the Forex Market Hours indicator can be used. The most pleasing fact is that you can get this tool for FREE via the following link and increase your chances for lucrative trading.