Forex trading is a 24-hour market that operates continuously throughout the week. However, the market is divided into four major trading sessions based on the time zone in which they are located. These trading sessions are the Asian session, European session, American session, and Pacific session. Each trading session has its own characteristics, and traders need to understand them to make informed trading decisions.
Asian Session
The Asian session starts at 23:00 GMT on Sunday and ends at 08:00 GMT on Monday. The session covers the markets in Tokyo, Hong Kong, Singapore, and Sydney. The Tokyo market is the largest market in the Asian session and is the third-largest forex market globally. The Asian session is known for its low volatility and limited trading opportunities, with most traders focusing on the Japanese yen and the Australian dollar.
One characteristic of the Asian session is the overlap with the European session, which creates a period of increased trading activity. The overlap occurs from 02:00 GMT to 04:00 GMT and is known as the Tokyo-London overlap. During this period, traders can take advantage of increased liquidity and volatility in the market.
European Session
The European session starts at 07:00 GMT and ends at 16:00 GMT. The session covers the markets in London, Frankfurt, Zurich, and Paris. The London market is the largest forex market globally, accounting for 43% of the daily trading volume. The European session is characterized by high liquidity and volatility, making it the most active trading session.
The European session overlaps with the Asian and American sessions, creating periods of increased trading activity. The London-New York overlap is the most significant overlap, occurring from 12:00 GMT to 16:00 GMT. During this period, traders can take advantage of the increased liquidity and volatility in the market.
American Session
The American session starts at 12:00 GMT and ends at 21:00 GMT. The session covers the markets in New York, Chicago, and Toronto. The New York market is the second-largest forex market globally, accounting for 17% of the daily trading volume. The American session is characterized by high liquidity and volatility, making it the second-most active trading session.
The American session overlaps with the European session, creating a period of increased trading activity. The London-New York overlap is the most significant overlap, occurring from 12:00 GMT to 16:00 GMT. During this period, traders can take advantage of the increased liquidity and volatility in the market.
Pacific Session
The Pacific session starts at 21:00 GMT and ends at 08:00 GMT. The session covers the markets in Wellington, Sydney, and Tokyo. The Pacific session is the least active trading session, with low liquidity and volatility. Most traders focus on the Australian dollar and the New Zealand dollar during this session.
One characteristic of the Pacific session is the overlap with the Asian session, creating a period of increased trading activity. The Tokyo-London overlap occurs from 02:00 GMT to 04:00 GMT and is known as the Tokyo-London overlap. During this period, traders can take advantage of increased liquidity and volatility in the market.
Conclusion
Understanding the characteristics of each trading session is essential for forex traders. Traders need to know when each session starts and ends, the currencies that are most active during each session, and the periods of overlap with other sessions. By understanding the trading sessions, traders can make informed trading decisions and take advantage of the opportunities that each session offers.
