Forex Trading Sessions and Their Importance
The forex market is open five days a week, from Monday to Friday, 24 hours a day. This makes traders from all over the world changing hands when buying or selling currency pairs. There are many financial centers around the world that heavily influence the way the Forex market is moving. Clearing centers, when fixing is taking place, matter most for the currency market.
When these financial centers are opened, volatility increases. This means that currency pairs are moving more aggressively. The more important the financial center and the transactions that take place there, the more the currency markets will move. This is what traders are looking for, as speculation is useless if the underlying financial instrument is not moving.
Based on the financial centers that are opened throughout a trading day, there are different trading sessions that take place. They are not equally important, and this is a valuable information for the Forex traders as they can calibrate their expectations.
Forex Trading Sessions
Even though are various regional financial centers in the world, a trading day is split into three trading sessions: Asian, London and North-American sessions. Out of the three sessions listed above, the London session is the most important one. Global financial companies have an office in all these time zones to cope with unexpected market moves. However, the main trading is taking place in the biggest financial centers in the respective trading sessions.
The London Session
By far, the most important trading session is the London session. London is the biggest financial center in the world as the City is the heart of the global financial system. It is in London where Euro is being cleared, a business that involves hundreds of billions of Euro. Now that the Brexit happened (the United Kingdom voted in June 2016 for the country to leave the European Union), it is not clear what is going to happen with the clearing business for the Euro, but even if it is relocated, London will still be a big financial center.
When it comes to Forex trading, the London session is associated with the European session, as the time zone is the same. It is just being called the London session because London as a financial center is open for business. Europe is home to important currencies that make a huge part of the Forex dashboard. Important currencies come with important central banks, and this is what moves the currency market. European Central Bank (ECB), Bank of England (BOE), Swiss National Bank (SNB), and other important central banks in Sweden and Norway are all being active in the London session. Relevant economic data is released in the London session and this matter for the currencies the data is referring to.
Euro (EUR), the British Pound (GBP), the Swiss Franc (CHF), heavily fluctuate in the London session. When grouped with other currencies, various currency pairs are formed and this makes the bulk part of the Forex dashboard. Just a few examples are EURGBP, GBPCHF, EURCHF, etc. When the currencies are grouped together, the resulting currency pairs are moving when economic data is released or when the central banks are releasing the monetary policy.
The North-American Session
Following the London session, the North-American one is the second in importance. The United States economy is the biggest economy in the world and the U.S. dollar is the world’s reserve currency. This makes everything happening in the United States to be of vital importance for the global economy and, therefore, for the Forex market. The dollar and the American economy is supervised by the most powerful central bank in the world: The Federal Reserve of the United States (FED).
The Fed is a proactive central bank and when Fed is deciding on its monetary policy, the whole Forex dashboard is moving, no matter the currency pair. So powerful the Fed is and that important the U.S. dollar is. One important thing to be mentioned here is the fact that the two most important trading session, the London and the North-American one, are overlapping. This means that, effectively, when the North-American session starts, the London is still open for business.
Those few trading hours are the most intensive ones, with prices making large swings around fixing times. As a trader, one should notice a decrease in trading activity or in the way the market is moving by the time the London session closes and only the North-American session is on.
The Asian Session
Asia is home to one of the biggest economies in the world: Japan and China. These two are influencing the world’s economy and have implications for all the currencies that make the Forex dashboard. In Japan, Bank of Japan is experimenting with the most aggressive quantitative easing package that ever existed. This unprecedented territory is a big unknown for a central bank and the reaction in the Forex market was that the JPY, Japan’s currency, made large swings lately.
To give you an example, just imagine that by the time the Bank of Japan embarked on this quantitative easy program, the USDJPY jumped from values below 80 to values over 120. This kind of a move was almost vertical, happened fast, with traders caught on the wrong direction paying a terribly expensive price. China is the world’s manufacturer but its ambitions are to reach other areas as well. People’s Bank of China (PBOC) contributes to the liquidity in the overall global financial system and its interest rate decision affect not only the Yuan, the Chinese currency, but also the other currencies via its implications.
However, even though two of the most important economies are in Asia, the Asian trading session is the most “boring” one. Currency pairs are not really moving, ranges are holding, and trading Forex in the Asian session is not fun. But this opens other possibilities as well. There are different trading techniques that can be employed in the Asian session, like trading with an oscillator.
Oscillator is technical indicators that are applied at the bottom of a currency pair’s chart and show overbought and oversold levels. They are working like a charm in ranging markets, and the Asian session is such a market. Moreover, traders are using scalping techniques in the Asian session. Such techniques are calling for quick profits being made when the market is moving in very small and incremental steps.
To sum up, all trading sessions are important as the Forex market and attention moves the way the sun goes. A successful trader is active in all trading sessions as pending orders are used to trade when it is not possible to watch markets. Therefore, a stop loss and a take profit is a must when trading the Forex market and they are being hit in other sessions than the one the trader is normally active. Knowing what is important in each trading session is vital for one’s success.
Recommended Further Readings
- Forex Trading – Explaining the Concept
- What Makes a Good Forex Broker?
- Why Trading with a Regulated Forex Broker?
- Benefits of Mobile Forex Trading
- Explaining Commissions in Forex Trading
Other Educational Materials
- News announcements, market activity and volatility in the euro/dollar foreign exchange market.Bauwens, L., Omrane, W.B. and Giot, P., 2005. Journal of International Money and Finance, 24(7), pp.1108-1125.
- “Intraday forex bid/ask spread patterns-Analysis and forecasting.”Paukštė, Andrius, and Aistis Raudys. In Computational Intelligence for Financial Engineering & Economics (CIFEr), 2013 IEEE Conference on, pp. 118-121. IEEE, 2013.