Forex market is a global market and is open 24 hours a day except for weekends. Traders from various regions participate in the forex market according to their time zones. The forex market is divided into four forex trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session. However, some traders divide the forex market into three sessions: the Asian session (Tokyo session), the European session (London session), and the North American session (New York session).
Forex Trading Sessions
As a forex trader, it is essential to learn about the different forex sessions to execute your trading strategies accordingly. In this article, we will discuss the salient features of each trading session, which will help you determine which session is the best for you.
1- Sydney Trading Session
The Sydney session is the first session to open and begins at 10 PM GMT in summer and 9 PM GMT in winter. The session closes at 7 AM GMT in summer and 6 AM GMT in winter. The volatility and liquidity generally remain low in the Sydney session and gradually grow in other subsequent sessions. Traders generally avoid sessions with low liquidity and volatility as it provides low trading opportunities.
You should consider trading the Australian and New Zealand dollar during the Sydney session.
2- Asian Trading Session
The Asian or Tokyo trading session starts at 12 AM GMT in summer and winter and closes at 9 AM GMT in summer and winter. The forex market picks momentum in the Asian session, and many traders use the Asian trading session to gauge the future trend of the forex market. The Asian session accounts for roughly 6% of the total forex transactions.
The Asian or Tokyo session is known for low liquidity and volatility, which makes it easier for traders to determine their entry and exit points. Traders can employ risk management strategies with ease as traders can quickly react to the adverse market moves and change their strategies accordingly. Traders can exploit breakout opportunities during the overlap with the start of the London or European session. During the time of overlap, liquidity and volatility start increasing resulting in breakouts.
You should consider trading the crosses of Japanese yen, Australian dollar, Singapore dollar, and New Zealand dollar during the Asian session as these currency pairs are most actively traded during the session.
3- European Trading Session
London, the economic center of the world, accounts for more than 35% of the total trading volume. Other important cities in Europe involved in the European session include Frankfurt, Milan, and Amsterdam. The European trading sessions is best known for high liquidity because big financial institutions and banks deal in the forex market from London and run their forex operations during the European session.
You can enjoy high liquidity, volatility, and low spreads during the European session. At the end of the London or European session, trends can sometimes reverse as European traders lock-in some of their gains. Due to the high liquidity and volatility, you can trade almost any currency pair, but the most traded pairs during the session include EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY, and GBP/JPY. Due to high volatility, you need to be careful with your risk management strategies while executing trades as sudden market moves can disturb your account.
4- US Trading Session
New York, the central city in the US trading sessions, accounts for roughly 15% of the daily total forex transactions across the world. During the overlap of the European and the U.S sessions, volatility and liquidity remain high. However, as the European session ends, the momentum of transactions decreases. Other financial centers, such as Toronto and Chicago also contribute to trading during the U.S trading session.
Because the U.S dollar is involved in roughly 85% of all forex trades, the U.S session is extremely important as most of the moves in the U.S dollar occur during the U.S trading session. Major economic reports and data are released during the U.S session which often begets major moves in the U.S dollar. On Friday, you can see the reversal of trends as most U.S traders close their positions in the second half of the U.S session to protect themselves from the overnight significant news events.
To become a successful forex trader, you should know the opening and ending times of each of the four sessions. Some traders based in Asia like to trade in the U.S trading session to capture the major moves in the U.S dollar while some traders based in the U.S prefer European sessions. Each session has its own advantages and disadvantages and you should determine what trading session to trade based on your trading style and trading strategies.
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