The concept of a trading session is important as it refers to the trading hours during which the market of a given country is open. The trading sessions vary between stocks, futures, forex, and bonds. The active trading hours are different for the different markets simply because they have various characteristics.
There are three main trading sessions, including the Asian session, the European session, and the North American session. Each has unique features that traders should be familiar with to succeed during a given trading session.
Regular vs. Extended Trading Hours
Traders are most likely familiar with the term “a trading day.” For the uninitiated, it is the regular trading hours during which a stock exchange market is open.
Since we are on the subject, we would like to discuss the term “extended trading.” It is trading outside the regular trading hours of the listing exchange conducted by electronic networks. Extended Trading Hours (ETH) also vary between assets, securities, and countries.
Extended trading hours provide investors with the opportunity to react to important events that might affect the market outside the regular trading hours. Investors should know that brokers usually require traders to set a limit on day orders during ETH.
Furthermore, trading during extended hours is possible only on certain markets. Trading during ETH comes with particular risks as outlined by the US Securities and Exchange Commission, including less trading volume, large spreads, increased volatility, and others.
Asian Trading Session
The first trading session to start is the Asian session. It is active from 11 pm to 8 am GMT. Participants tend to be most active in the morning. The Asian trading session closes on Friday and opens again on Monday.
According to TradingPedia.com, major centers such as Japan, China, Hong Kong, Singapore, and others are active during the Asian session. A curious fact is that the Asian session accounts for 6% of the forex transactions across the globe.
Liquidity is lower than the other two types of trading sessions, resulting in consolidation in the currency market. With the opening of other financial centers, liquidity improves. Due to the lack of liquidity, traders are advised to use oscillators on short-term charts to trade cross pairs (a currency pair that does not involve USD).
London Trading Session
The London session is the largest of all, accounting for over 30% of the world’s forex transactions. It runs from Monday through Friday from 7 am to 4 pm GMT, which is quite logically considered the official business hours in London.
However, the trading period can be expanded due to other major capital markets such as Germany and France. Important central banks, including ECB, BOE, SNB, are present during the London session.
During the London session, long-term charts will help you to better analyze the market. This is because the London session is the most volatile of all trading sessions.
Another important aspect is that the London session usually takes the Asian session’s highs or lows at its opening, especially when it comes to major USD pairs.
North American Trading Session
The North American session kicks off at noon, and it runs to 8 pm. This means that when the North American session opens, the London session is still running. This overlap represents the most important time of the trading day as all major participants are present on the trading market. It determines the fixing time, after which liquidity starts to decline.
Every six weeks, all market participants stay late as the Federal Reserve Open Markets Committee (FOMC) meeting determines the monetary policy. According to estimations, 16% of the world’s forex transactions happen during the North American session.
Due to the large number of corporations listed on the US stock market, it is the largest equity market globally. Unlike the Asian session during which scalping is recommended, swing trading is advisable during the London and North American sessions.
Regardless of the trading session you intend to participate in, you have to keep in mind that the opening on Monday is the most illiquid trading time.
The overlap of trading hours between the three sessions allows investors to trade 24/5. However, experts advise amateur traders to avoid overnight trading (trading outside regular market hours).
Traders should also not forget to keep an eye on the non-farm payroll (NFP) report released every week as it can cause the largest price movements in the forex market.