Forex Trading Sessions

The Forex market operates around the clock, 5 days a week, offering traders the flexibility to engage at any time. However, it is important to understand the different forex trading sessions to enhance your trading effectiveness. This guide will help you understand the key Forex trading sessions and how to optimise your strategies during these periods.

Understanding Forex Market Hours

The Forex market is unique in that it is open 24 hours a day, five days a week. This continuous trading environment is made possible by the global nature of currency trading, with market activity following the sun across the world’s financial hubs. Understanding the different trading sessions and their characteristics is crucial for traders looking to maximize their profits.

Overview of Major Forex Trading Sessions

The Forex market is divided into four major trading sessions based on the opening and closing times of key financial centres around the world:

• Sydney Session (10 PM – 7 AM GMT)
• Tokyo Session (12 AM – 9 AM GMT)
• London Session (8 AM – 5 PM GMT)
• New York Session (1 PM – 10 PM GMT)

Each session has its unique characteristics, influenced by the major markets operating during those hours. The level of market activity and liquidity varies, affecting the volatility of currency pairs.

Detailed Breakdown of Each Session

Sydney Session

The Sydney session is the first to open after the weekend, making it the starting point of the global trading week. Although it is the smallest of the major sessions, it can still set the tone for the day as traders react to news from the weekend.

Most Affected Currency Pairs:

• AUD/USD (Australian Dollar/US Dollar) – This pair typically experiences a daily range of around 30-50 pips during the Sydney session.
• NZD/USD (New Zealand Dollar/US Dollar) – Similar to AUD/USD, this pair often moves within a range of 30-50 pips.

Price Gaps:
Price gaps can occur at the start of the Sydney session, especially after the weekend when the market opens on Monday. These gaps result from events or news that occur over the weekend when the market is closed.

Tip: The Sydney session is ideal for traders looking to ease into the week or for those who prefer a less volatile environment. Monitoring the opening of the session can be crucial for spotting early trends or price gaps. Strategies can include range trading or seeking opportunities to close the price gaps.

Tokyo Session

The Tokyo session overlaps with the Sydney session for a few hours, leading to increased market activity. Japan is a major financial hub, and the Tokyo session sees significant trading of the yen, along with other Asian currencies.

Most Affected Currency Pairs:

• USD/JPY (US Dollar/Japanese Yen) – The pair typically sees a daily range of about 30-60 pips during the Tokyo session.
• EUR/JPY (Euro/Japanese Yen) – This cross-pair is also actively traded, with a daily range of 40-80 pips.
• AUD/JPY (Australian Dollar/Japanese Yen) – This pair is popular due to the strong trade relations between Japan and Australia, with a daily range of 40-70 pips.

Price Gaps:
While less common than in the Sydney session, price gaps can still occur at the start of the Tokyo session, especially following major news out of Asia.

Tip: If you are interested in trading the yen or other Asian currencies, the Tokyo session offers the best opportunities due to the region’s high activity during these hours.

London Session

As the Tokyo session ends, the London session takes over. London is the largest Forex trading centre globally, contributing to the session’s high volatility and liquidity. Many major currency pairs, including EUR/USD, GBP/USD, and USD/JPY, see substantial movements during this session.

Most Affected Currency Pairs:

• EUR/USD (Euro/US Dollar) – The most traded currency pair, with a typical daily range of 50-90 pips during the London session.
• GBP/USD (British Pound/US Dollar) – Known for its volatility, this pair often sees a daily range of 60-100 pips.
• USD/CHF (US Dollar/Swiss Franc) – This safe-haven pair usually moves within a range of 40-80 pips.

Price Gaps:
Price gaps are less frequent in the London session but can occur when major European news is released before or during the session.

Tip: The London session appeals particularly to experienced traders who seek larger price movements and higher volatility. This session is often considered the best for trading due to the sheer volume of transactions and the overlap with the New York session. Spreads are generally thin during this session, making it ideal for day trading strategies.

New York Session

The New York session begins as the London session is halfway through, leading to a significant overlap that creates some of the most volatile periods in Forex trading. This session also benefits from high liquidity, especially during the first few hours when it overlaps with the London session.

Most Affected Currency Pairs:

• USD/CAD (US Dollar/Canadian Dollar) – Due to the proximity of the US and Canada, this pair sees a typical daily range of 40-70 pips during the New York session.
• EUR/USD (Euro/US Dollar) – The overlap with the London session can push the daily range to 60-100 pips.
• GBP/USD (British Pound/US Dollar) – Also benefits from the overlap, often seeing daily movements of 70-110 pips.

Price Gaps:
Gaps can occur at the start of the New York session following significant overnight news from Europe or economic data releases in the US.

Tip: The New York session is excellent for traders who thrive in a fast-paced environment, with significant price movements and abundant trading opportunities. The early overlap with the London session is particularly volatile, making it a prime time for day traders.

Trading Strategies During Session Overlaps

One of the most advantageous times to trade Forex is during the overlaps between major trading sessions. For instance, the overlap between the London and New York sessions sees the highest trading volumes and liquidity, leading to more significant price movements and tighter spreads.

Why Trade During Overlaps?

• Increased Liquidity – More participants in the market mean higher trading volumes, which can lead to tighter spreads and more efficient execution.
• Volatility – The increased activity can lead to sharper price movements, offering more profit opportunities.

If you are a trader who thrives on volatility, the London-New York overlap might be the best time to trade. On the other hand, if you prefer a more stable environment, you might opt to trade during less active periods.

Best Times to Trade Forex

While each trading session has its unique characteristics, the best session will depend on your trading style and strategy. For example:

• Scalpers and day traders – They might prefer the London or New York sessions due to higher volatility.
• Long-term investors – May prefer quieter periods when the market is less reactive to short-term news.

Key Takeaways:

• London-New York Overlap – Best for high liquidity and volatility.
• Tokyo-London Overlap – Offers opportunities for trading Asian and European currencies.
• Sydney-Tokyo Overlap – Ideal for early risers or those looking to start their trading day with less volatility.

Conclusion

Understanding the different Forex trading sessions and their unique characteristics is essential for developing an effective trading strategy. Forex trading sessions influence volatility in the market, and it is crucial to align your strategy with the appropriate session to optimize your chances of success.

Ready to put this knowledge into practice? Open a demo account with AvaTrade and start exploring the best trading sessions for you, risk-free.