The foreign exchange market is open 24 hours a day during the week. The 24-hour forex trading session consists of three manageable trading periods.
Around-the-clock trading allows investors from across the globe to trade during normal business hours, after work, or even in the middle of the night. Not all times of the day are created equal when it comes to trading forex, however. There’s always a market for this most liquid of asset classes called forex but there are times when price action is consistently volatile and there are periods when it’s muted.
Different currency pairs exhibit varying activity during certain periods of the trading day due to the general demographic of the market participants who are online at the time.
Key Takeaways
- The 24-hour forex trading session consists of three manageable trading periods.
- Traders usually focus on one of the three trading periods rather than attempt to trade the market 24 hours per day.
- Activity peaks in the Asian, European, and North American sessions which are also referred to as Tokyo, London, and New York.
- Sessions will sometimes overlap such as a four-hour period for peak activity in both Europe and North America.
- Volatility is sometimes elevated when forex trading sessions overlap.
Understanding the 24-Hour Forex Market
The 24-hour forex (FX) market offers a considerable advantage for many institutional and individual traders because it guarantees liquidity and the opportunity to trade at any conceivable time. Currencies can be traded anytime but an individual trader can only monitor a position for so long, however.
Most traders can’t watch the market 24/7 so they’re bound to miss opportunities or worse. A jump in volatility can lead to a movement against an established position when the trader isn’t around.
A trader must be aware of times of market volatility and decide when and how it’s best to minimize this risk. They can and should adapt their knowledge of volatility and participation in the sessions for a successful trading plan.
The Three Trading Sessions
The market is traditionally separated into three peak activity sessions and regions: the Asian, European, and North American sessions. These are also referred to as the Tokyo, London, and New York sessions. The three cities represent the major financial centers for each of the regions.
The markets are most active when these powerhouse areas are open for business. Most banks and corporations in the respective regions conduct their day-to-day transactions at these times and there’s also a greater concentration of speculators online.
| Forex Trading Sessions by Region and Market | |||
|---|---|---|---|
| Session | Major Market | Hours (GMT) | Hours (ET) |
| Asian Session | Tokyo | 12 a.m. to 9 a.m. | 7 p.m. to 4 a.m. |
| Sydney | 10 p.m. to 7 a.m. | 5 p.m. to 2 a.m. | |
| European Session | London | 8 a.m. to 5 p.m. | 3 a.m. to 12 p.m. |
| North American Session | New York | 1 p.m. to 10 p.m. | 8 a.m. to 5 p.m. |
Asian Forex Session (Tokyo)
The Asian markets are naturally the first to see action when liquidity is restored to the FX market at the start of the week. Activity from this part of the world is unofficially represented by the Tokyo capital markets and it spans from midnight to 9 a.m. GMT.
Notable countries other than Japan also trade during this period, however. They include China, Australia, New Zealand, and Russia. It makes sense that the beginning of the Asian session starts before the standard Tokyo hours considering how scattered these markets are. Asian hours are often considered to run between 11 p.m. and 9 a.m. GMT.
European Forex Session (London)
The European session takes over to keep the currency market active just before the Asian trading hours come to a close. This FX region is very dense and includes several major financial markets. London takes the honor of defining the parameters for the European session.
This trading period can start before the official opening in the U.K. due to the presence of other capital markets including Germany and France. The end of the session is pushed back as volatility holds until after the close. European hours generally run from 8 a.m. to 5 p.m. GMT, however.
Trading sessions can start before and extend beyond set or official trading times depending on the degree of activity,
North American Forex Session (New York)
The Asian markets have already been closed for several hours by the time the North American session comes online but the day is only halfway through for European traders.
This session is dominated by activity in the U.S. with participation from Canada, Mexico, and countries in South America. Activity in New York City represents the high volatility and participation rate for the session.
The North American hours may unofficially begin before their GMT start time taking into account the early activity in financial futures, commodity trading, and the concentration of economic releases. The considerable gap between the close of the U.S. markets and the opening of Asian trading can mean a lull in liquidity. This puts the close of New York trading at 10 p.m. GMT as the North American session closes.
Effects of Overlapping Trading Sessions
The Asian/European sessions overlap, sometimes creating more volatility due to increased trading activity during these hours. This shows the uptick in the hourly ranges in various currency pairs at 7 a.m. GMT.
Image by Sabrina Jiang © Investopedia 2020
There will be a greater response to the Asian/European session overlaps and a less dramatic increase in price action during the European/U.S. sessions’ concurrence if the currency pair is a cross made of currencies that are most actively traded during Asian and European hours. An example would be EUR/JPY and GBP/JPY.
The presence of scheduled event risk for each currency will still have a substantial influence on activity, regardless of the pair or its components’ respective sessions.
Image by Sabrina Jiang © Investopedia 2020
Trying to establish a position during a pair’s most active hours could lead to a poor entry price, a missed entry, or a trade that counters strategy rules for long-term or fundamental traders. Volatility is vital for short-term traders who don’t hold a position overnight, however.
Impact on Trading Strategies
A market participant must first determine whether high or low volatility works best with their trading style when trading currencies. Trading during session overlaps or typical economic data release times may offer profit opportunities if substantial price action is desired.
A trader must also determine what time frames are most active for their preferred trading pair. The European/U.S. session crossover will provide the most movement for the EUR/USD pair.
There are usually alternatives to trading in this session and a trader should balance the need for favorable market conditions with outlying factors such as physical well-being. A market participant from the U.S. must wake up early in the morning to keep up with the market if they prefer to trade the active hours for GBP/JPY assuming they prefer to handle things on their own rather than work with a broker.
Is Greenwich Mean Time (GMT) Still the Standard for Time?
GMT is no longer the standard for worldwide time. The standard has been Universal Time Coordinated (UTC) since 1972. Their times are the same but GMT is a time zone and UTC is a time standard.
Can I Trade FX on Weekends?
Not really. The forex market is available 24 hours a day during the week but it closes at about 5 p.m. on Fridays and reopens at 5 p.m. on Sundays.
Is There a Best Time to Trade Forex?
There’s no official best time but many traders feel that 8 a.m. to 12 p.m. ET holds great potential because of the overlap of the London and New York trading sessions. Substantial data is released in the U.S. in these hours. There are many participants and the market experiences volatility and liquidity, especially for USD pairs.
The Bottom Line
The forex market is essentially open for business 24 hours a day, five days a week due to the three major forex trading sessions across the world. It offers substantial potential for profitable trading as a whole.
That doesn’t necessarily mean you should monitor and take part in every session, however. Lack of sleep could lead to exhaustion and errors in judgment if you’re not a professional trader. An alternative may be to trade during the hours that make up the European/U.S. session overlap where volatility is still elevated even though Japanese markets are offline.
