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The foreign exchange market has the largest liquidity of any market with approx. 5.7 trillion dollars being traded every day. In order to succeed, traders must consider several factors before placing trades. A few of these factors we will include in today’s article, which is the trading sessions, and market hours. Market hours means the times in which traders and institutions can exchange currency and speculate.

Forex Trading Hours

The largest market in the world, foreign exchange attracts people in search of the perfect trading strategy. The relatively simple way to trade and the extended Forex trading hours, make the currency market the destination for people that want an extra income.

Compared with other markets, Forex has a tremendous advantage: it is open 24/5. In other words, starting with early Monday morning in Asia, the Forex dashboard keeps showing changing prices, offering an opportunity at any one time.

But not all trading sessions have the same characteristics. A live trading session sees the market moving fast, with volatility reaching elevated levels.

On the other hand, when essential market participants aren’t active, the prices barely move. Hence, to fully understand the importance of Forex trading hours and the relevant trading sessions, one needs to know the market participants involved too.

Moreover, the market conditions change depending on the trading hours worked. For instance, a trader active in the Asian session will have a hard time targeting a hundred pips move during the same session. The market simply doesn’t move that much during those trading hours.

The London session, though, is one of the most liquid and volatile trading sessions. However, even during this session, the market spends a lot of time in consolidation.

In the end, it is a matter of understanding the economic calendar ahead, the holidays to come that may influence the flows, as well as the market players capable of moving the prices. Mastering these areas results in traders knowing what are the best Forex trading sessions to trade for a quick and predictable profit.

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Forex Market Participants

A key element in understanding the Forex market is to know who’s behind the volatility. More precisely, who is responsible for the aggressive price movements? Ultimately, why do prices change so much and fast?

It all starts with the policymakers. In this case, with central banks.

They meet regularly, in each jurisdiction around the world, and review the economic and monetary conditions. At the end of a few days worth of meetings, central banks issue a statement with the changes, if anything, in the monetary policy.

Not all central banks have the same impact on prices, and they don’t meet at the same time. There is a schedule known ahead, and traders know in advance what are the Forex trading hours when the most important central banks reveal the monetary policy changes.

Central banks with the most power to move prices are the Fed in the United States, the ECB (European Central Bank) in Europe or the BOE (Bank of England) in the United Kingdom, to name a few.

The rule of thumb says that the higher the interest rate established by the central bank, the more attractive the currency becomes. Hence, traders will buy or sell a currency in anticipation of what the central bank will do with the rates, or in anticipation of how the currency will react to the central banks statements.

But that’s not everything. Central banks do actually have a trading department.

In charge of implementing a monetary policy decision, or merely defending a currency in tough times, central banks trading departments are active players on the currency market.

Other Market Participants and Particularities That Influence Trading Sessions

Institutional players have a big chunk of the Forex pie too. Think here of investment companies (mutual funds) or sovereign wealth funds, as well as treasury departments of commercial banks.

They all have a mandate from their clients to exchange currencies, affecting the volatility and price action during certain Forex trading hours.

In this vast market environment, the retail traders make only about five percent of the entire volume. In other words, even if they would act together, in a concerted manner, the impact on prices remains insignificant. Hence, to make it in this world, retail traders must anticipate big players’ moves and align their interests.

Watch this video: How to be a successful trader (15mins 17secs)

Mergers and Acquisitions

The M&A market is worth remembering here, even for the simple reason that it is a huge source of market flows. Imagine a U.S. corporation buying a rival in the United Kingdome, in a deal worth billions of pounds.

Someone needs to change that USD into GBP, and that’s done during Forex trading hours, typically the most liquid ones.

Forex Trading Sessions Explained

The retail trader rarely understands the complexity of the market when he/she first starts trading. In a way, it isn’t a surprise.

The Forex market is a combination of spot and futures contracts, swap contracts and options, that relate to each other in every detail. From most of the retail traders’ point of view, all that matters is to put an indicator on an MT4 (MetaTrader4 – the most popular trading platform among the retail community) chart and trade according to the signals generated. However, the source of volatility is far more critical, and that’s the starting point to every successful career in trading.

Liquidity is an important factor for many traders. In fact, the most active Forex trading hours are in the time zones here the biggest clearinghouses function.

The Asian Session

FX trading starts early Monday in Asia. The New Zealand market is the first one to open, and, for a few hours, traders change hands.

These are the most illiquid Forex trading hours. As such, spreads are wide, and the market typically gaps.

Speaking of gaps, this is the only time when they do form in the Forex market. During the regular trading sessions, gaps are extremely unlikely to happen, unless something extraordinary takes place (e.g., SNB – Swiss National Bank – dropping the 1.20 EURCHF floor resulted in huge gaps during regular London trading session).

Because of the unfriendly market conditions in early Asia, many brokers decided to “delete” the Sunday candlestick from their charts. In other words, they don’t reflect the trading activity that takes place in early New Zealand trading, altering the information on the charts.

This may be a good thing or not. From a broker’s point of view, it may mean nothing.

However, traders using algorithms to trade their ways into the market may experience different results using different brokers and trading sessions. Hence, one needs to pay attention to every detail to make the most of each trading session.

All institutional market players active during the London and North American sessions have a branch or a “trading arm” open during the Asian session. While most of the time the prices move in tight ranges, sometimes price action picks up.

That’s especially the case when important economic news is released in that part of the world. Furthermore, there are a few critical central banks that issue statements during Asian Forex trading hours.

Bank of Japan (BOJ)

BOJ, as it is also known, is one of the most emblematic central banks in the world. Known mostly for its inability to bring inflation to its 2% target, BOJ faces unprecedented demographic problems in Japan.

Therefore, its efforts to bring inflation to target and stimulate economic growth were met with extreme market volatility on the JPY pairs. When BOJ announces the monetary policy or changes to it, the prices move aggressively, and the Asian session becomes one of the most exciting trading sessions.

Reserve Bank of Australia (RBA)

RBA meets regularly to assess the Australian economy’s strength. Isolated from the rest of the world and depending on China for most of its exports, the Australian economy is home of the Aussie dollar or AUD.





Flows into and out of the AUD pairs create volatility on all trading sessions, especially during the Asian ones when RBA meets. Also, inflation reports and GDP (Gross Domestic Product) out of Australia make the AUD pairs moving a lot.

Reserve Bank of New Zealand (RBNZ)

Few traders know that this is the most revolutionary central bank in the world. It was the first one to introduce inflation targeting and now the first one to switch to a dual mandate (inflation targeting and jobs creation) after the Fed in the United States.

RBNZ statements result in NZD pairs gaping and spreads widening, or in volatile Forex trading hours. That’s especially true in times when the RBNZ follows the Fed decision, which happens every once in a while on a Wednesday. Therefore, keeping an eye on the economic calendar is key to survive the surge in volatility generated by such events.

The London Session

This is the most important trading session of them all. Despite many thinking of New York, London is “the” financial center of today’s world.

Two of the most critical central banks in the world (ECB and BOE) release their statements during this session. On top of that, other central banks in the region (e.g., SNB) are active too. As a result, the Forex trading hours are volatile and marked by wild market moves.

However, the tip of the iceberg in terms of market activity comes when the New York session kicks in. Early New York trading coincides with the London session activity and, for a few hours, flows come and go from both of them. It is during this time when the Forex trading activity increases to unprecedented levels.

Therefore, every trading day, these are the most relevant Forex trading hours. But, their importance is particularly relevant during the end of the trading week.

Most notably, these Forex trading hours on Fridays have the most elevated trading volume when compared with other similar situations during the week. And, when a Friday coincides with the last trading day in the month, volatility reaches extreme levels.

When this happens, the market is full of opportunities. The market moves to come and go super-fast, everyone trying to make the most of the increased market activity.

The North American Session

The North American session or the New York session, typically decreases in importance once London traders go home. However, from time to time, this changes.

It is especially the case when the Federal Reserve of the United States, the most important central bank in the world, releases the FOMC (Federal Open Market Committee) Statement. Every two meetings (once a quarter), the FOMC Statement is followed by a press conference.

The Fed’s Chair answers questions from the press representative, and the USD, the world’s reserve currency, is all over the place. Volatility, therefore, reaches elevated levels.

The Fed releases the statement in the second half of the North American session. When this happens, everyone in the world with an interest in trading currencies, pay attention.

For once, the poles or the importance of trading sessions change dramatically, with the Fed in the driving seat.

Otherwise, all relevant economic data from the United States and Canada comes out in the early North American session. With the London session still open and active, traders make the most of the incoming data.

Conclusion

The currency market is unique in every way. It changes daily, morphing into something new as the market players inputs change too.

Since the world’s leading nations dropped the gold standard, currencies started free-floating against each other. The moment represented the birth of the Forex market as we know it today.

Forex trading sessions were slightly different, though. For instance, there was no Internet or email.

To place a trade during the Asian session, a New York trader needed to wake up extremely early, pick up the phone, and effectively to communicate the trade info. Oh, how things have changed!

Nowadays, we talk about algorithmic trading. Robots are able to execute thousands of small trades per second, compete on the same arena with regular Joe’s wanting to make an extra buck.

Forex trading hours changed dramatically, as the market participants changed too. The inputs differ as well, making it a place full of unpredictable movements, where no one trading day is the same.

However, this is the thing that attracts traders around the world. The uniqueness of each trading day and session makes it for an environment like no other.

While the Forex market is closed over the weekend, not once events during the end of the week influence prices on Monday’s opening. In other words, one can safely say that the Forex trading hours never end, with the market being sensitive to everything that might influence the prices.

In short, while the Forex Market is open 24 hours a day, there are a few specific times of the day where more lucrative opportunities arise, such as the opening of certain sessions (London, New York, Tokyo, Sydney), or the closure of other markets such as commodities.

By utilising these particular times and opportunities, you can greatly improve your trading experience and expand your account at a faster pace, allowing you to further diversify your trading portfolio by allowing you more margin for market trading.

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