An important question that forex traders often find themselves confronted with is deciding the best time to enter and exit positions in the market. Though the market runs all through the 24 hours in a day, there are some moments when the market exhibits increased volatility and liquidity which often provides the best entry for traders seeking to capitalize on the market volatility to make quick returns. This article has therefore discussed the different trading sessions with the degree of volatility and liquidity they provide, to help traders decide which is the best entry that suits their trading strategies.
Forex Trading Sessions: What you need to know
The forex market generally is open to traders to enter the market and take positions all through the 24 hours in a day, and the five working days in a week. However, the market is not equally active throughout the day with the same volatility. Certain trading sessions are known to exhibit higher levels of liquidity and volatility than others. These trading sessions can be classified into the three major zones below.
Asian Session: The Asian session represents the first major trading session of the day and commences with the opening of the Tokyo market. This session has relatively lower volatility and liquidity compared to other sessions. The most active currency pairs traded during this session are the Yen crosses, such as USD/JPY and EUR/JPY.
European Session: The European session occupies the center stage with the opening of major financial hubs like London, Frankfurt, and Zurich. This session often experiences increased trading volumes and volatility, as it overlaps with the Asian session for a few hours. The most active currency pairs during this session are the euro crosses such as EUR/USD, EUR/GBP, and so on.
US Session: The US session begins with the opening of the New York Markets. This session overlaps with the European session which results in larger liquidity and volatility. To this end, the US session stands out as the most active and volatile trading session. The most active currency pairs during this period are the US dollar crosses, such as EUR/USD, GBP/USD, and USD/JPY.
Factors Influencing Forex Market Volatility During the different trading Sessions
Several important factors contribute to the volatility and liquidity of the forex market during different trading sessions. Understanding these factors often helps traders make informed decisions on the best time to enter and exit their positions. Here are some of the key factors every forex trader needs to note today:
Economic Releases: Major economic reports, including GDP figures, employment data, central bank announcements, and interest rate decisions, when released can significantly impact currency values. Some experienced traders often prefer to trade during sessions that coincide with the release of these reports to capitalize on price fluctuations resulting from market reactions.
Overlapping Sessions: Often, the periods of overlap between two trading sessions could result in increased trading activity and volatility. For instance, the overlap between the European and US sessions (approximately 8:00 AM to 12:00 PM ET) often offers enhanced liquidity and trading opportunities for traders to take positions using different online trading brokers such as eToro, Capital.com, and Pepperstone online brokers.
Market Opening Hours: The opening hours of specific financial centers can influence market sentiment and activity. For instance, the start of the London session (3:00 AM ET) typically witnesses increased trading volumes and volatility as European traders enter the market.
In the dynamic world of forex trading, timing plays a crucial role in determining success. While the forex market is open 24/5, traders should consider the characteristics of different trading sessions and the factors that influence market volatility. By aligning their trading activities with the most active sessions, traders can enhance their chances of capturing favorable price movements and maximizing profits. Additionally, trading with the best day trading brokers offers an extra advantage to day traders and scalpers seeking the best platform that supports their strategies.