The FOREX market is the largest traded financial market in the world with a trading volume of over 4 trillion U.S dollars per day. What makes the FOREX market unique from all other financial market is that it operates 24/5 (24 hours 5 days in a week) round the clock. During these time, large volume of transaction takes place from session to session which provides profitable trading opportunities for traders. These session to session trading activities is what makes the FOREX market 24 hours open every day except during weekends. This allows investors from around the world to trade during normal business hours, after work or even in the middle of the night.We will be discussing about each trading session, there overlaps and how they produce great trading opportunities.
Traditionally, the market is separated into four sessions during which activity peaks: the Pacific, Asian, European and North American sessions. More casually, these four periods are also referred to as the Sydney, Tokyo, London and New York sessions. These four cities represent the major financial centers for each of the regions. The markets are most active when these four powerhouses are conducting business as most banks and corporations make their day-to-day transactions and there is a greater concentration of speculators online. Also there are times when two of these sessions overlap i.e two sessions open simultaneously. These session overlaps produces great liquidity and volatility in the market which offers a considerable advantage for many institutional and individual traders. Lets take close look on these session individually and there overlaps.
Pacific Session (Sydney)
This trading session restores liquidity to the FOREX market after the weekend passes, the Sydney markets are naturally the first to open the trading week at 10:00pm GMT or 5:00pm EST on Sunday. The Sydney market constitutes of countries like New Zealand and Russia accounting for the most trading transaction during the session. It opens daily by 10:00pm GMT or 5:00pm EST and closes by 7:00am GMT or 2:00am EST. The Sydney session has the least liquidity in the market, hence most times markets trade in a range bound pattern. Spreads on major pairs are likely to be slightly higher during these times except for fixed spread brokers whose spreads are static at all times. The most traded currency pairs that are traded during this session are NZD/USD, NZD/JPY, AUD/NZD.
Asian Session (Tokyo)
The Tokyo session kicks off after the Sydney session by 1:00 am GMT or 8:00 pm EST and closes by 10:00 am GMT or 5:00 am EST. Countries with considerable pull that are present during this period including Japan, China and Australia among others. Trading volume increases by this time and more liquidity is seen in the market, though not as seen in both the London and new York sessions. However, Australian, Chinese and Japanese markets are relatively small markets compared to the European and the U.S markets and the price changes are still relatively moderate. Spreads on major pairs are likely to be slightly higher during these times as well except for fixed spread brokers whose spreads are constant at all times. During the Asian session, the Australian Dollar and the Japanese Yen are traded the most, because these 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 AUD/USD, AUD/JPY, USD/JPY and AUD/NZD.
European Session (London, Frankfurt)
Later in the trading day after the Sydney session is closed, just two hours before the Asian trading hours also comes to a close, the European session takes over in keeping the currency market active. London ultimately takes the honors in defining the parameters for the European session. Official business hours in London runs between 8:00 am GMT or 3:00 am EST and closes 5:00 pm GMT or 12:00 pm EST. However Frankfurt runs between 7:00 am GMT or 2:00 am EST and closes 4:00 pm GMT or 11:00 am EST. At this time a large number of traders both institutional and retailers are participating in the market. This results in larger movements compared to the Asian and Sydney session alone, because day traders are exiting positions in Asia, whilst day traders are entering into positions in Europe.
During the European session there are no currency pair that behave differently from normal, so generally, all currency pairs can be traded. There is also substantially higher volume and liquidity in these sessions and so the spreads tend to be smaller. This accounts for why the London session is the most traded session out of all sessions. London market accounts for almost 38% of the total volume – more than New York (17%) and Japan (6%) put together. Trading when the London session open is a good start to ensure that you are trading in a highly liquid market which can produce great amount of profitable pips for professional traders. The most traded currency pairs that are traded during this session are GBP/USD, EUR/USD, GBP/JPY, EUR/JPY, EUR/GBP and GBP/CHF.
North American Session ( New York, Canada)
The New York session commences by 1:00 pm GMT or 8:00 am EST and closes by 10:00 pm GMT or 5:00 pm EST. By the time the North American session comes online, the Asian markets have already been closed for a number of hours, but the day is only halfway through for European traders. The Western session is dominated by activity in the U.S, with a few contributions from Canada and Mexico. However, the New York markets has the most activity in the North American session providing enough liquidity and volatility for traders all over the world. What makes the New York session interesting is that the London session is also available at the moment which makes it the best time to trade currency pairs like EUR/USD, GBP/USD and USD/CAD. After the European session closes, the North American sessions carries trading activities alone till 10:00 pm GMT and then the Pacific session resumes.
OVERLAPPING OF SESSIONS
Overlapping of sessions is when two trading sessions are active or on simultaneously for a particular duration of time. During this time, volatility and liquidity is at its peak. This is the best time to trade the FOREX market because of the large number of pips movement seen during these time. There are 3 overlapping trading sessions in the FOREX market namely:
1.SYDNEY AND TOKYO OVERLAP TRADING SESSION which occurs between 1:00 am GMT and 7:00 am GMT.
2. TOKYO AND FRANKFURT/LONDON OVERLAP TRADING SESSION which occurs between 7:00 am GMT and 10:00 am GMT.
3. LONDON AND NEW YORK OVERLAP TRADING SESSION which occurs between 1:00 pm GMT and 5:00 pm GMT.
DAYLIGHT TIME SHIFT
Every 6 months daylight time shift occurs in the various countries which includes the Europe, Great Britain, Switzerland, Australia, New Zealand, U.S and Canada. This daylight time shift adds or minus 1 hour from each opening and closing time of the trading sessions. Usually change in time shift occurs between the month of March and September. So for example, if Sydney session opens at 10:00 pm GMT from March till late August, it changes to 11:00 pm GMT when daylight time shift occurs in September. This is also applicable to other trading sessions.