The forex market is always active 24 hours a day. However, three major sessions make up for those 24 hours; the Tokyo, London, and New York trading sessions. Each session has unique traits and tendencies that can influence your forex trades

 

The main forex trading sessions 

The forex trading sessions are divided based on the working hours of three major regions; Asia, Europe, and North America. These sessions are named after each region’s major financial centres: Tokyo, London, and New York.

 

The Tokyo trading session

Also known as the Asian trading session, the Tokyo session is the first to open in the forex market. It opens by 5:00 am on Monday and closes by 6:00 pm on Friday, Japanese Standard Time (11 pm-8 am GMT).

Although the official time trading starts is subjective. Due to the volume of trade facilitated by Tokyo banks during this session, it is commonly believed that the Asian trading session opens when Tokyo banks come online. However, aside from Japan, there are other financial hot spots in the Asian trading session which include Australia, Russia, China, and New Zealand. 

Compared to other trading sessions, the Tokyo market is less liquid. As such, it often leads to consolidation in the market. Consolidation is when the price moves in a narrow range until there is a breakout. Traders often look forward to trading breakouts at the end of the Tokyo session.

The currencies of Asian pacific countries, such as the Japanese Yen, Australian Dollar, Hong Kong Dollar, and New Zealand Dollar, are very volatile during this session. As such, currency pairs like AUD/USD, NZD/USD, EUR/CHF, and AUD/CHF often experience more significant moves during this period compared to non-Asian Pacific pairs. 

The volatility is often due to the release of important macroeconomic data and news from the Asian Pacific countries. It is also expected that traders from these countries will likely use their domestic currencies in most of their trades.

The momentum in the Tokyo market sets the tone for the other trading sessions because traders often use what happened during the Tokyo session to evaluate and gauge their strategy for other sessions.

 

The London trading session

Also referred to as the European session, the London session opens by 7 am GMT and closes by 4 pm GMT. Aside from London, other major financial centres during this session are; Frankfurt, Milan, and Amsterdam.

The London session is highly liquid and sees the most significant trading volume in the forex market. Nearly all currency pairs experience high liquidity during this period. 

Trading major currency pairs such as EUR/USD, USD/JPY, GBP/USD, GBP/CHF, GBP/ JPY and USD/CHF during this period can be profitable. Due to the high trade volume, major currency pairs often experience tighter spreads. Aside from that, major economic news from Eurozone countries like the UK and Switzerland is released during this period, and it can very likely affect pairs that involve Euro and Pounds. 

 

The New York trading session 

The New York trading session is also known as the North American trading session. The session begins at 12-1 pm and ends by 9-10 PM. 

It is dominated by participants from North America, such as the US, Mexico, Canada and other South American countries like Argentina. USD is the primary currency during this session which amounts to about 85 percent of the trade volume during this period. 

Major economic news from the US is released at the beginning of the session. As such, USD pairs often experience rapid price movements during this period. However, like the European session, almost all currency pairs can be traded during this period. 

 

Finding overlaps in forex sessions

Trading sessions can overlap when one session begins before the end of another session. During this period, the market experiences higher liquidity and volatility due to participants’ activities during the two market sessions. 

The London session opens when Tokyo is at its last trading hour. Day traders during the Tokyo session are looking to exit, while day traders during the London session are making their entry. This hour often leads to overlap between these two sessions. Currency Pairs that involve JPY, like GBP/JPY and EUR/JPY, often experience high volatility during this period, but the spread will likely be wide.

The New York session starts in the middle of the European session. As such, the period of overlap between the two sessions is broader. During these overlapping hours, the market experiences higher buying and selling activities. However, the liquidity and volatility subside in the afternoon after the close of the European session.

 

What is the best and the worst time to trade forex?

Traders can trade at any hour based on their time zone and currency pairs they intend to trade. However, there can be better times to trade, and there can be worse times. 

The best time to trade in the currency market is when two markets are active simultaneously. 

When London and New York sessions overlap, the market experiences a higher volume of trade and more opportunities. The one-hour overlap between the Tokyo and London market session can create more opportunities for currency pairs involving the Japanese Yen. 

The late Sunday evening/early Monday morning is not a good hour to trade. During this period, the market is quiet, and traders are analysing how to begin the new week instead of jumping right into trading. There are low trading activities at the closing hours of the market on Friday; you may also want to avoid trading during this period.

For those with a low-risk appetite, trading before or after a significant news release may not be the best move. Some economic news and data influence the forex market. While the market is anticipating a vital report, trading activity can be low because everyone is uncertain about the outcome of the news. The market can also be too rapid immediately after the news is released. 

 

Final Words

Targeting major trading sessions is an essential strategy in your arsenal. By analysing the trading hours and their characteristics, you can figure out the best and worst times to open or close a position.