Open All Hours!!
Unlike trading certain asset classes such as equities, that are “tied” to a particular Stock Exchange that opens and closes, the FX market is open 24 hours a day 5 days a week. That said, the FX trading day consists of multiple trading sessions: the European session, American session and the Asian session – also known as the London, New York and Tokyo or Sydney sessions.
Generally, each of the above trading sessions are driven by the economies that are active in that time zone and so each session has unique characteristics to them.
When countries in these various geographical sessions are open for business, then that country’s currency, and the currency of their trading partners, are likely to be traded in greater volume.
In the Asian session, for example, companies in Japan are open and will be trading currencies in order to do business with companies in other countries. It is therefore likely that there will be a high volume of JPY being exchanged with the domestic currencies of countries that Japanese firms do business with.
In a similar vein, when Europe is open for business, the EUR is likely to be traded in higher volume, due to businesses in Europe trading with other countries.
So whichever session is currently open, the countries that are trading at that time will generally correlate with the currencies being traded. Therefore each trading session will be slightly different in terms of the activity of certain currency pairs, market participation, market volume and volatility.
Forex trading sessions
Strictly speaking, there are no open sessions at the weekend. Trading begins when the Sydney session opens at the beginning of the week and ends when the New York session closes at the end of the week. (However, many Middle Eastern countries are “open” at the weekend so the market really never closes – but pricing during this time is very poor and illiquid as there are so few participants trading. Trading access at the weekend becomes limited – even on ECN’s such as Reuters Matching and EBS) Where you are located in the world will depend on what time and day this is. If you are trading in Japan, the trading week starts on Monday morning. If you are in the UK, market opening will actually be on Sunday evening.
The table above shows the trading sessions in GMT, this is because GMT never changes and so you can use it in whatever time zone you are currently located in. For example, if you are in Central Europe, then for the winter time you will use GMT +1 hour. When the times change in the summer, you will use GMT +2 hours.
Asian Trading Session
Starts at 22:00 GMT when Sydney opens. Since only Sydney is trading at this time, the volumes that are traded are relatively small and therefore volatility is likely to be minimal compared to other sessions.
At 00:00 GMT, Tokyo opens and trading volume increases as there are more market participants. Australia and Japan are relatively small markets compared to Europe and the US and the price changes are still relatively moderate. The spreads on major pairs (EUR/USD, GBP/USD etc) are likely to be slightly higher during these times and the liquidity will not be as high as they are in the European and US session.
During this session AUD, NZD, JPY and CNH are traded the most, as they are the domestic currencies of the major markets that are open at that time. The most traded currency pairs that are traded during this session are typically: AUD/USD, AUD/JPY, AUD/NZD, JPY/USD, NZD/JPY and NZD/USD.
European Trading Session
At 8:00 GMT the London session opens and Tokyo is in the last hour of its trading session. At this time a larger number of market participants are trading in the market. As a result there is likely to be greater volatility compared to the Asian session alone, as many traders are exiting positions in Asia, whilst traders are entering into positions in Europe.
During the European session there are no currency pairs that behave differently from normal, so in general, all pairs can be traded. There is also substantially higher volume in these sessions and so the spreads tend to be tighter.
There tends to be more liquidity in the London session than any other session as the London market accounts for more than 35% (approximately) of the total global volume. This is considerably more than the New York session (approximately 20%) and Japan (approximately 7%) put together. Trading when the London session is active is a good start to ensure that you are trading in a highly liquid market.
The American session
At 13:00 GMT, the New York trading session opens and overlaps with the afternoon London trading session. With the combined market participants, from both the London and New York trading sessions, volumes and volatility are generally increased along with more competitive (tighter spreads) pricing.
At 17:00 GMT, the London trading session draws to a close and New York trades by itself until the Asian session opens again. At that time, only North & South America are open, and although the trading volume is still higher than during the Asian session, the volume is likely to decrease with the exit of European traders.
During the American session there are no particular currency pairs that should or should not be traded. Although USD/CAD pricing should remain competitive and volumes should remain high due to their proximities to one and other.
Generally Tokyo and London share an hour when the Asian trading session closes and the London trading session opens. London and New York also share five hours of trading from GMT 12:00 to GMT 17:00.
During these overlaps there are considerably more market participants trading at the same time, which will affect conditions in the market. When there are more market participants, there will be more liquidity in the market. Higher liquidity should mean that slippage is less likely, orders are more likely to be filled and the spreads on currency pairs are tighter. It should be noted that you should be wary when the trading week starts and when it ends as market volume is typically low.
National holidays will also impact market conditions (e.g. a UK or US bank holiday, Religious holidays etc.) because without these countries participating, market volume and liquidity will be a lower than normal. Therefore it is wise to use caution when trading forex at certain times. Bank holidays can cause lower liquidity and volume, while news reports can cause heightened volatility (gaps).
#tradesafely #fxzoo #doublehit