The fundamental motion of the Forex market is somewhat different to other types of trading markets. To put it poetically, Forex follows the sun as it travels around the globe, with particular markets opening and closing according to time zones.
Individual countries open at individual times, with the day, starting in New Zealand as its citizens wake up for the day, followed by Sydney and then Tokyo and Hong Kong. As the hours move on, more markets open as those countries wake up for the day and then begin to close as the day ends across the globe.
- The Asian Session opens first with Tokyo opening at 8 p.m. Eastern Standard Time and includes currencies from countries such as Australia, Japan, and New Zealand. It’s generally regarded to be the quietest of all the sessions in terms of how much trading goes on.
- The European Session opens next, with London opening at 3 a.m. Eastern Standard time. This session, obviously, includes all the countries on the European continent. It is the busiest of all the sessions because London is the financial capital of the world.
- The U.S. Session opens last, with New York opening at 8 a.m. Eastern Standard Time. This, too, is a busy session because it can often involve announcement and news that will have a large effect on the dollar.
The three sessions overlap, so you’ll find that there are some hours of the day in which two are running at once. Understanding which of the three main markets you’ll be dealing with requires first figuring out at what time of day you are free to trade on a regular basis (i.e. when you are not working, sleeping or fulfilling other responsibilities) and which markets are open at that time. If you have your eye on a particular session or market, on the other hand, you will need to adapt your schedule to suit.
The best times to trade are, of course, the times when there are overlaps because this is when the most volume of trade is taking place, more liquidity is available and there is more volatility. Perhaps the best time of all is at around 1 p.m. Greenwich Mean Time, which is when the UK and European markets are trading and the New York market is just opening. For two hours, these major markets will all be trading together.
A key piece of insight for a Forex trader is that all things are not equal to the hours of the day. A currency that is trading heavily during the Asian Session will not necessarily be trading heavily during the U.S. session. In fact, it will probably not be trading that much at all, because the corporations and governments who deal in international trade are snoozing on their pillows.
Which currencies become your trading bread and butter will, therefore, depend on where you are in the world and how your daily schedule tends to look. To become a successful trader may mean making concessions to the markets in terms of your own time. In other words, though it might be most convenient for you to do your trading in a couple of hours after you get home from work, that might not be a time when sessions are overlapping and the markets you want to trade in are awake and working.
As an example, let’s assume that you are able to be active during the London session. During this time, there is a wide range of trading going on, with around two-fifths of the trades concentrating on the pairing of the Euro and U.S. dollar and just under a quarter on the British pound paired with the U.S. dollar. Only a fifth of the trades involve the Japanese yen -down considerably from during the Toyko session, in which it took up three-quarters of the trading.
Clearly, where you are and when you are trading is important – and you’re going to need to think locally. Wherever the focus of the market is at any particular time during the day is also going to be where the focus of the trading is centered. It might be a poetic way of putting it, but Forex trading really is all about where the sun is shining – and who it’s shining on.
You will, therefore, need to study your options and decide what time of day for you is going to complement your trading the best. More markets open means more active trading and therefore more liquidity on the currencies involved in those markets.