The currency trading market was one of the first financial markets in history to provide quotes and order books, 24 hours a day on business days to traders globally.
This was possible largely because the difference in normal working hours in the world’s eminent financial hubs made it so, and because currency trading is so important to the global financial system that it was imperative to make this possible.
Learning when the three major sessions are active and how each session affects the liquidity of some of the major pairs is critical if you’re looking to know what the best time to trade is.
When Is Forex Trading Possible?
Currency trading is currently active during the hours of 11pm GMT on Sunday (8am on Monday in Tokyo), to 10pm GMT on Friday (5pm in New York).
These hours represent customary times during which traders can expect to be able to execute trades reliably.
Although the forex market is unregulated and doesn’t have an official open and close, after the close of the New York session on Friday, the forex market is effectively “shut”.
The 3 Major Trading Sessions
The three major forex trading sessions correspond to the regular business hours in the financial hubs of London, New York and Tokyo.
Because each of these cities has a large number of banks situated in them, with preferential operating conditions for financial institutions that operate out of these cities, the highest trading volumes occur during these times, when banks are transacting.
Traders will typically find that currency pairs that involve the city in which the session is based will have the highest volume. For example, the GBP/USD pair will likely experience the most volume during the overlap of the sessions of London and New York.
This session starts at 8am UK time (GMT or BST) and runs till 4pm. European currencies such as the Euro and Pound are most commonly traded during this session.
Starting at 8am New York time and running until 5pm, this session overlaps with the London session for its first 4 hours, and is the busiest of the 3 sessions, with USD pairs and Canadian dollar pairs being commonly traded throughout the session.
Starting at 9am in Tokyo until 5pm, this session overlaps with the first hour of the London session, which is normally a highly active and liquid period. Pairs involving the Japanese yen, Australian dollar and New Zealand dollar are customarily most liquid during this session.
Overlapping Trading Sessions
The most important hours during any forex session is when it overlaps with another. These hours usually correspond with increased volume and volatility.
The London / New York session overlap is generally considered to be the most important. During these hours, overall liquidity in the forex market is at its highest, with elevated volumes observed in the euro and the dollar, generally considered to be the two most important currencies for global trade, as well as the Canadian dollar.
Although it consists of some minor trading sessions, the overlap of banking hours in New Zealand, Sydney, Hong Kong and Tokyo is also considered to be relatively important as these are the hours during which traders can find the greatest liquidity for trading Asian currencies like the Hong Kong or Singaporean dollars. This overlap occurs between 1pm and 5pm GMT.
Variables To Consider
Each of these sessions and their overlapping hours will present different variables that can affect the currencies being traded during those hours. Specifically it can affect two important risk factors.
Volatility refers to the amount of observed relative movement of a currency pair. During periods of high volatility, the currency pair can move significantly during a short period of time. High volatility often requires a higher risk threshold from the trader, with stops that are farther away. Volatility also presents the most opportunities for profit if the pair moves in your favor.
Liquidity is related to the amount of currency being transacted. The more volume being exchanged, the greater the market “depth” is said to be, and this means that traders are able to exchange large volumes of currency effectively. This also affects execution-ability. Low levels of liquidity can often lead to requotes and difficulty entering your order, so as a general rule of thumb you should trade during times when liquidity is high.
Low-liquidity hours are potentially problematic, especially if you have a strategy that relies heavily on technical analysis, as these systems tend to behave more reliably in highly liquid markets.
If you’re a trader who’s looking to avoid taking risks in low-liquidity sessions, you should seek to steer clear of the following times:
Friday afternoons, Sunday evenings.
Although technically still active, the hours just before the markets close and right after the markets open suffer from low levels of liquidity due to a reduced number of market participants.
Look out for national holidays in the UK, US, Japan and Australia, as on these days liquidity may be a problem, particularly if two or more of these regions have holidays occurring on the same day.
The Best Forex Trading Times
An important consideration in your trading is deciding which times and which sessions will offer the best opportunities that suit your pairs and your strategy.
Of course, you’ll want to simply trade during the natural hours that you’re awake, but you may want to adjust this slightly if you find that better opportunities are present outside these hours.
For example, if you’re based in the UK, you may find that trading in the Japanese Yen during your regular hours doesn’t really match with the news cycle that emerges out of Japan. This can mean you’re missing out on the biggest opportunities and also not properly managing your risk. Adjusting your hours to be alert and trading during the Tokyo session might be advantageous, especially if you’re expecting a data release out of Japan regarding monetary policy.
Choosing the right trading session for your strategy, lifestyle, or even for a particular day, can often be more complex than it sounds and will be different for each trader.
What’s important is that the times you choose make good sense for your trades, and that you take the time to understand the variables involved and volatility profiles of the pairs you’re trading so that you can make informed, and hopefully profitable, decisions.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.