Forex Trading Sessions and Their Importance

The Forex market is open 5 days a week, from Monday to Friday, 24 hours a day. This makes traders from all over the world change hands when buying or selling currency pairs. There are many financial centres around the world that heavily influence the way the Forex market is moving. Clearing centres, when fixing is taking place, matter most for the currency market.

When these financial centres are opened, volatility increases. This means that currency pairs move more aggressively. The more important the financial centre 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 centres that are open throughout a trading day, there are different trading sessions that take place. They are not equally important, and this is valuable information for the Forex traders so that they can calibrate their expectations.

Forex Trading Sessions

Even though there are various regional financial centres in the world, a trading day is split into three trading sessions: the Asian, London, and North American sessions. Of the three sessions listed above, the London session is the most important one. Global financial companies have an office in all of these timezones to cope with unexpected market moves. However, the main trading takes place in the biggest financial centres during their respective trading sessions.

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The London Session

By far the most important trading session is the London session. London is the biggest financial centre in the world, and the City is the heart of the global financial system. It is in London that the euro is cleared, a business that involves hundreds of billions of euro. Now that the Brexit vote has 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 centre.

When it comes to Forex trading, the London session is associated with the European session, as the timezone is the same. It is just called the London session because London is open for business as a financial centre. Europe is home to important currencies that make up a huge part of the Forex dashboard. Important currencies come with important central banks, and this is what moves the currency market. The European Central Bank (ECB), Bank of England (BOE), Swiss National Bank (SNB), and other important central banks in Sweden and Norway are all active in the London session. Relevant economic data is released in the London session, and this matters for the currencies the data is referring to.

The euro (EUR), the British pound (GBP), and the Swiss franc (CHF) fluctuate  heavily in the London session. When grouped with other currencies, various currency pairs are formed, and these make up the bulk of the Forex dashboard. Just a few examples are EUR/GBP, GBP/CHF, EUR/CHF, etc. When the currencies are grouped together, the resulting currency pairs move when economic data is released, or when the central banks release their monetary policy.

The North American Session

The North-American SessionFollowing the London session, the North American one is second in importance. The United States economy is the biggest economy in the world, and the US dollar is the world’s reserve currency. This makes everything that happens in the United States of vital importance for the global economy and, therefore, for the Forex market. The dollar and the American economy are supervised by the most powerful central bank in the world: The Federal Reserve of the United States (the Fed).

The Fed is a proactive central bank, and when it decides on its monetary policy, the whole Forex dashboard moves, across all currency pairs, so powerful is the Fed and so important is the US dollar. One important thing to mention here is the fact that the two most important trading sessions, the London and the North American one, are overlapping. This means that, effectively, when the North American session starts, the London session 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 open.

The Asian Session

Asia is home to two of the biggest economies in the world: Japan and China. These two influence the world’s economy, and have implications for all the currencies that make up the Forex dashboard. In Japan, the 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 recently.

To give you an example, just imagine that by the time the Bank of Japan embarked on this quantitative easing programme, the USD/JPY jumped from values below 80 to over 120. This kind of a move was almost vertical, and happened fast, with traders caught on the wrong direction paying a terribly expensive price. China is the world’s largest manufacturer, but its ambitions are to reach other areas as well. The People’s Bank of China (PBOC) contributes to the liquidity in the overall global financial system, and its interest rate decision affects 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 actually the most “boring” one. Currency pairs are not really moving, ranges are holding, and trading Forex in the Asian session is not fun. This opens other possibilities as well, though. There are different trading techniques that can be employed in the Asian session, such as trading with an oscillator.

Oscillators are technical indicators that are applied at the bottom of a currency pair’s chart, and show overbought and oversold levels. They work like a charm in ranging markets, and the Asian session is such a market. Moreover, traders use scalping techniques in the Asian session. Such techniques call for quick profits to be made when the market is moving in very small and incremental steps.

To sum up, all trading sessions are important on the Forex market, and attention moves to follow the sun. A successful trader is active in all trading sessions, as pending orders are used to trade when it is not possible to watch markets. A stop loss and a take profit are therefore a must when trading the Forex market, and they are hit in sessions other than the one the trader is normally active in. Knowing what is important in each trading session is vital for a trader’s success.

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