Forex trading sessions differ from the opening hours of most financial markets. Forex is open 24 hours a day. Since the forex market does not have a single location, it moves from one country to another throughout the day, closing only on weekends when most of the world's banks are closed.
The forex market opens every Monday at 8:00 am in New Zealand (Auckland). It then moves around the world: Australia (Sydney), Japan (Tokyo), Europe (Frankfurt), UK (London) and USA (New York).
This cycle continues every week until it finally breaks at midnight on Friday in New York City. The market closes for the weekend. We are able to trade the forex market 24 hours a day, which gives us great flexibility.
The forex market was one of the original financial markets where traders worked around the clock. This situation has mainly arisen due to the global importance of currency trading for companies and banks located in different countries around the world.
In the interbank foreign exchange market, professional forex traders working in one branch of a large international bank typically transmit foreign exchange orders from their local clients to subsidiary branches to ensure efficient execution of their trades around the clock.
Each forex trading session is usually given the same name as the city with corresponding opening hours. If you are looking for the best time to trade currency pairs, then understanding how forex sessions work and which currencies are the most liquid during this period becomes very important.
Why are forex trading hours so important?
The Forex market circulates daily according to the opening hours of financial markets in different countries.
It is important to know about forex trading hours as they determine the current market volatility. Without volatility, prices remain unchanged and your trading cannot be profitable. With high volatility and large price movements, trading opportunities arise that we can take advantage of.
The greatest activity of traders occurs during the European and American sessions, so this is the best time for trading. During this period, the most transactions are made, and trading spreads (the difference between the purchase price and the sale price) are the lowest.
You may also notice that some trading sessions overlap each other, so volatility tends to be highest during these hours.
During winter trading hours, trading hours are moved forward one hour.
Forex trading sessions
Forex trading currently takes place from the official market opening, which occurs every week on Sunday afternoon at 04:00 New York time in the New Zealand cities of Auckland and Wellington, until the market eventually closes on Friday afternoon at 17:00 New York time in New York.
Although the forex market as a whole remains unregulated and without any official organization, these hours represent the usual opening times during which traders can make foreign exchange transactions.
After closing in New York, a modest number of transactions may subsequently occur in Chicago in the US Midwest, as well as in the cities of San Francisco and Los Angeles on the US West Coast. This type of trading is mainly for bank clients.
However, when traders working at banks located in these cities go unlisted and return home on Friday, the forex market effectively closes for the weekend.
- The Pacific session, the least volatile, opens at midnight. The trading day begins in New Zealand and Australia. The financial center of trade in the Pacific is located in Wellington, but its trade turnover is very low.
- The Asian trading session begins at 02:00 in Tokyo, followed by Singapore and Hong Kong. Trading activity here is quite moderate. Due to low trading activity, market participants often combine the Asian and Pacific sessions.
- The European session opens at 10:00 when the Asian session comes to an end. London is the financial center of the world as its trading hours overlap with three other trading sessions. The London trading floor has the largest financial turnover in the world. The European session reaches its peak activity during the first two to three hours. After this, the market slows down a bit until the American session opens.
- As New York traders begin work at 3:00 p.m., London traders return from their lunch breaks to continue their trading. At this time, the most important fundamental news and statistics are released. The American trading session ends at midnight when the Pacific session reopens.
The charts below show trading activity for major currency pairs over the past five years based on current time.
EUR/USD:
USD/JPY:
USD/CAD:
Each of the major trading centers has normal business hours when most banks and professional traders work. In all cases, these hours coincide with the business hours of other trading sessions. This overlap ensures the smooth and continuous development of forex trading around the world.
The following figure shows the opening hours of the foreign exchange market for each of the main centers. This schedule includes opening hours for financial centers such as: Frankfurt, Paris, London, New York, Auckland, Wellington, Sydney, Tokyo, Hong Kong and Singapore.
A very important element to note in the above table is that working hours in one major financial center such as London, New York and Tokyo are the same as working hours in another. These coincidences correspond to times of significantly greater liquidity and trading volume due to the greater number of active market participants at these times.
Three main currency trading sessions
In the over-the-counter forex market, the three main trading sessions generally correspond to regular banking hours in the major cities of London, New York and Tokyo. Each of these cities is the main monetary center in the respective countries of the UK, USA and Japan.
All of these major money centers are home to a large number of banks that actively participate in foreign exchange trading. In addition to dealing with their clients, these banks also trade with each other in the interbank market by telephone, through brokers and using electronic dealing systems.
Banks located in a particular trading center tend to see higher trading volumes in currency pairs that include the local currency. For example, a Japanese bank located in Tokyo may see more USD/JPY transaction volume than any other currency pair. Similarly, a UK bank based in London may see a lot of GBP/USD trading volume.
London session
This very active trading session begins in Tokyo and begins at 03:00 New York time and continues until 12:00 or noon New York time, when its traders typically hand over the books to their New York counterparts. This session typically sees heavy trading volume in European currencies such as the euro and pound sterling, as well as their major crosses.
New York session
This active forex trading session begins at 08:00 New York time and closes at 17:00 New York time. New York traders completely absorb their London counterparts at 12:00 or noon New York time, and therefore this session overlaps with London from 08:00 to noon New York time, during which the forex market is very active and liquid .
New York does not directly overlap with Tokyo, so institutional bank traders in New York tend to outsource books to either counterparts on the west coast, those located in New Zealand cities such as Auckland or Wellington, or Sydney, Australia. Currencies traded against the US dollar and Canadian dollar appear to be the most active and liquid during this time period.
Tokyo session
This session begins at 19:00 New York time and ends at 04:00 New York time, after which the books are distributed to colleagues located in London or in continental European cities such as Frankfurt or Paris. During the Tokyo-London overlap, the forex market is again quite active and liquid. The major currency pairs and the Japanese Yen, Australian Dollar and New Zealand Dollar pairs will be the most active and liquid during this trading session.
Minor trading sessions and futures contracts
In addition to the three main trading sessions corresponding to business hours in London, New York and Tokyo, there are several relatively smaller forex trading sessions worth noting. Some of these sessions offer transitional liquidity in the forex market.
In addition to the main New York session, there are two minor US trading sessions that provide access to liquidity to forex traders and banking clients during US business hours. These sessions correspond to business hours in Chicago, which are one hour later than in New York, as well as hours observed in US West Coast cities such as San Francisco and Los Angeles, which are three hours later than in New York and end in Tokyo.
Several smaller trading sessions are located outside the United States. The first corresponds to the regular business hours of Wellington and Auckland in New Zealand, which coincide with the sessions in New York and Tokyo.
The Sydney trading session in Australia also coincides with the New York and Tokyo trading sessions. In Asia, the trading session of Singapore and Hong Kong does not coincide with New York, but coincides with Tokyo and London.
When it comes to currency futures, some of the most active contracts trade using the Chicago-based CME Group's electronic network. Its hours begin with a pre-opening for orders and market indicators at 5:00 pm New York time on Sunday, with trading officially beginning an hour later at 6:00 pm.
On normal weekdays, this currency futures market begins activity before opening at 5:45 pm New York time, with trading beginning at 6:00 pm. Trading in these currency futures contracts officially closes at 5:00 pm New York time every Friday evening.
Overlapping forex trading sessions
Overlaps between forex trading sessions are important to traders because these times typically correspond to periods of greater order activity, volatility, and trading volume.
Perhaps the most important and active of these coincidences occurs between the London and New York sessions. This overlap occurs from 08:00 New York time to 12:00 or noon New York time. During this time period there is usually significant overall liquidity, which is concentrated in the Canadian dollar and the European currency quoted against the US dollar.
Another important overlap occurs between the relatively minor sessions of New Zealand, Sydney, Hong Kong and Singapore and the main session in Tokyo. This occurs from 20:00 New York time to 24:00 New York time and tends to offer traders greater liquidity in Oceanian and Asian currencies.
The most dangerous time to trade
Every experienced trader can probably point to a time when they believe that forex trading tends to be riskier than at other times. Most of these periods will include important changes in key market risk factors for currency traders, which typically include:
- Volatility is a term associated with the degree of market movement, and certain types of volatility, including implied, historical and actual volatility, have become important measures of risk for many traders, especially those involved in options trading.
- Liquidity – This relates to the depth of the forex market and the ability to efficiently process large transactions, and its ratings usually reflect the number of market participants willing to quote the market.
- Trade Execution Ability – This risk factor determines whether trades can be effectively executed without multiple re-quotes due to rapid market movements.
- Slippage – This refers to the difference between the level at which a trade is opened and the level at which the order is actually executed.
- A spread is the difference between the bid and ask prices quoted by the market maker.
Trading conditions typically deteriorate by most standards during risky trading and are typically characterized by factors such as increased volatility, decreased liquidity, greater slippage on orders, and wider trading spreads.
Many currency traders will find this risk trading time potentially problematic for their strategies, especially those based on technical analysis.
Technical trading methods tend to work better in highly liquid and orderly markets because technical analysis assumes that the market price has already discounted all available data, and this assumption tends to break down in fast markets.
Times that many forex professionals avoid, whose strategies work better in liquid and orderly markets, include:
- Friday and Sunday afternoons – Although the forex market is technically open, liquidity is often thin and trades expand during these times due to fewer market participants.
- Holidays – These can be particularly problematic for liquidity when holidays occur in one or more major trading centers, including London, New York and Tokyo.
- Major news releases may include election results, national conflicts and disasters, or announcements from powerful central banks.
- Major Economic Data Releases – Traders may wish to check the forex economic calendar for the times and dates of such releases, which are typically provided prior to the actual release of the release. A particularly notable example is the US non-pharma report, which is usually published on the first Friday of each month at 8:30 am New York time, which is usually 1:30 pm London time.
However, some forex traders actually like to take advantage of the strong market movements seen during periods of high volatility.
These participants include news traders, whose strategies are designed to take advantage of the large price movements that typically occur when major news reports or economic data are released. They often look forward to trading more volatile periods focused on these economic news releases that many other technical traders avoid.
Why is 24/7 market availability great?
Having the ability to trade any time during the week is one of the best features of the forex market.
Let's take the Russian stock market for comparison.
For example, you live in Moscow (your time is GMT +3). You wake up at 7:00 am to go to work and return home at 7:00 pm. The Russian stock market is open from 10:00 to 18:35. It turns out that it is not available for you to trade.
With forex, you can go home at any time, open your charts and trade whenever it suits you. You don't need to rush to enter or exit trades before the market closes. You can even trade during holidays. There will always be a bank in the same time zone that will work. And all your Forex transactions will be processed.
Best Forex Trading Sessions
For many forex traders, it is important to consider trading timing to decide which trading sessions provide the best opportunity to execute trades based on their specific trading strategy.
While most traders choose to simply work during regular business hours, some traders may choose to adjust their work hours based on the currency pairs they want to trade most.
For example, a person interested primarily in trading Japanese yen may not be able to enjoy the same degree of liquidity and flow of information during the New York trading session as he might see during the Asian trading session when the major Japanese banks compete for forex -business, and Japan releases its key economic data.
Even if physically based in Europe or the United States, a Japanese Yen trader could adjust his waking and trading hours to better meet the standards of the local Japanese forex market.
Essentially, determining the best forex trading session for your specific strategy, lifestyle preferences, and other time constraints such as another job can be complex and unique to each trader.
However, in many cases it can be useful for a trader to analyze the time-dependent liquidity and volatility profiles of each currency pair and optimize them for their specific trading strategy.
