The foreign exchange market, or forex, is a decentralized global marketplace where currencies are traded 24 hours a day, five days a week. The market is open from Sunday at 5 pm EST until Friday at 5 pm EST. Within these hours, there are different trading sessions that impact currency trading, with the London session being one of the most important.
The London session is considered the most active trading session in the forex market. It starts at 3 am EST and ends at 12 pm EST. During this time, the largest volume of trades is executed, accounting for approximately 35% of all forex trading activity. This session is also referred to as the European session, as London is the financial capital of Europe.
The London session overlaps with two other major trading sessions: the Asian session and the New York session. The overlap with the Asian session occurs from 3 am EST to 4 am EST, and the overlap with the New York session occurs from 8 am EST to 12 pm EST. These overlaps create high liquidity and volatility, providing traders with ample opportunities to make profits.
There are several factors that contribute to the high trading volume during the London session. Firstly, London is home to some of the largest financial institutions, hedge funds, and investment banks in the world. As a result, the session attracts a lot of institutional traders, who execute large trades that impact the market.
Secondly, many economic reports are released during the London session, including the European Central Bank (ECB) monetary policy decisions, UK GDP, and German IFO business climate. These reports often have a significant impact on the market, as they provide insight into the health of the European economy.
Lastly, the London session is also influenced by the opening of other European markets, such as Frankfurt and Paris. As these markets open, traders adjust their positions, which can lead to increased volatility in the market.
Traders should be aware of the specific currency pairs that are impacted by the London session. The most actively traded currency pairs during this session are the EUR/USD, GBP/USD, and USD/CHF. These pairs are highly liquid and offer tight spreads, making them popular among traders.
It is important to note that while the London session is the most active trading session, it may not necessarily be the best time to trade for every trader. Traders should consider their individual trading strategies and goals before deciding when to enter and exit trades.
In conclusion, the London session is a critical trading session in the forex market. It is characterized by high liquidity and volatility, making it an attractive time for traders to enter and exit trades. Traders should be aware of the specific currency pairs impacted by this session and consider their trading strategies before deciding when to trade.
