Categories
International Forex market sessions - Trading Volume and Characteristics
The reason Why Forex Markets are connected and opened 24/5.
5 main Forex markets and their trading volumes.
- The Forex Market Never sleeps
- Different Trading Sessions
- Different Forex Trading Volumes in each Forex Market
- How traders invest during each market session?
- What is FOREX and how it works?
- How is Forex Market so unique?
- 3 Main Forex Market Sessions – Asian, European and American
For a clear understanding of the time of the forex market, as well as changes in activity of the currency pairs in the market, we suggest you read the schedule start and end of the Forex market.
Experts identify four trading sessions Forex: Asian, European, American and Pacific.
The Forex Market Never sleeps
The Forex Market is the only market that it is kept open 24 hours a day and 5 days a week.
As the London and European trading sessions close, the New York session is already in full swing; as trader’s switch off their computers in the United States the Asian and Australian Markets get into gear.
Different Trading Sessions
The business day in all financial sectors be it London, Tokyo or New York is usually based on the 8 hour shift.
However as the Forex Market is not traded on any particular exchange, a market participant who resides in London has no legal, physical or regulatory obstacle stopping him/her from trading into the New York and even Tokyo sessions.
This is especially advantageous to European Forex Traders who are keen to trade the afternoon volatility that is created by United States data releases such as the all-important Federal Reserve Open Market Committee (FOMC) events and the Non-Farm Pay roll (NFP) numbers.
Most global banks operate full branches in all the major financial centres of the world.
Before the advent of automated trade management systems investors need a method to manage open positions and handle pending orders.
Know the market hours and Trade smartly
In today’s computerized world this task is easier to accomplish as trade management software will automatically look after the currency position, limit the size of the potential loss, set profit targets and execute new positions.
Therefore it became a necessity and standard practice over the years for banks to pass on executional trading orders across the world and across time zones.
In this way a Cable Trader who is sweating on an open position of GBPUSD can pass on sell and buy orders to his colleagues in New York.
If the Market did not trade through these levels during New York trading hours then the order would be passed onto Tokyo.
From there would move onto Hong Kong, Singapore, the Gulf and then back to Europe.
However the trading hours of a London Dealing Desk had to accommodate the ending of the Asian trading session.
Therefore a Forex Trader could not work the standard and well known 9 am to 5 pm day but had to shift their morning so that it overlapped the Asian session.
| Forex Market Center | Time Zone | Market Opens (GMT) | Market Closes (GMT) | Market Status |
|---|---|---|---|---|
| Frankfurt Germany | Europe/Berlin | 2015/3/18 7:00 | 2015/3/18 15:00 | Open |
| London – UK | Europe/London | 2015/3/18 8:00 | 2015/3/18 16:00 | Open |
| New York – USA | America/New York | 2015/3/18 12:00 | 2015/3/18 20:00 | Open |
| Sydney – Australia | Australia/Sydney | 2015/3/18 18:00 | 2015/3/19 5:00 | Closed |
| Tokyo – Japan | Asia/Tokyo | 2015/3/18 23:00 | 2015/3/19 7:00 | Closed |
Different Forex Trading Volumes in each Forex Market
Not all Sessions are Created Equal.
There are several financial markets in the world connected though, of course some of them have larger trading volumes concentrated.
The London Session is by far the largest market in terms of Forex Volumes accounting for some 37% of the global trading volumes.
Whilst trading in the New York session accounts for around 18% of global volume.
| London | 41% |
|---|---|
| New York | 19% |
| Singapore | 5.70% |
| Japan | 5.60% |
| Hong Kong | 4.10% |
Not only does the London session dominate the Forex Market in terms of global volumes, but also experiences much larger price movements and daily ranges than its counterparts in New York and Tokyo.
The extent of large price movements during this session has been a turning point for many trading strategies which are based around the London Open.
These strategies attempt to take advantage of large congestion break out trades that follow the close of the Asian session and the London open.
How traders invest during each market session?
1. U.S. Session
Most active in the Forex market is observed during the U.S. session
During this session, start working the banks and U.S. financial institutions, as well as continuing their work European dealers.
European and U.S. banks have roughly the same impact on the Forex market, so the session is characterized by a smooth and predictable trade.
Volatility in the U.S. session observed by the European session on Friday night.
American session characterized more aggressive than other sessions.
2. European Session
At this time, there is the most significant changes in exchange rates, as in Europe, the bulk of funds.
Trading volume on major currency pairs increases considerably after the opening of the London market, where the main financial players.
3. Asian Session
At the time of the Asian session, the highest activity was observed in pairs containing the Japanese yen, as well as the Australian Dollar, USD, JPY, EUR, JPY, AUD and USD.
4. Pacific session
Pacific session is characterized by calm and measured.
But sometimes this session explodes market if U.S. Federal Reserve arranges meetings and reports on the results at 22:15.
The first reaction to the results of the meeting may cause violent activity during the session, and to influence the price chart.
| Forex Pair | Tokyo | London | New York |
|---|---|---|---|
| EUR/USD | 76 | 114 | 92 |
| GBP/USD | 92 | 127 | 99 |
| USD/JPY | 51 | 66 | 59 |
| AUD/USD | 77 | 83 | 81 |
| NZD/USD | 62 | 72 | 70 |
| USD/CAD | 57 | 96 | 96 |
| USD/CHF | 67 | 102 | 83 |
| EUR/JPY | 102 | 129 | 107 |
| GBP/JPY | 118 | 151 | 132 |
| AUD/JPY | 98 | 107 | 103 |
| EUR/GBP | 78 | 61 | 4 |
| EUR/CHF | 79 | 109 | 7 |
What is FOREX and how it works?
As such, the market for foreign exchange transactions FOREX (from the English foreign exchange market) existed a long time ago and its main purpose is not to maintain speculative traders, but to maintain the world turnover of products and services.
FOREX – in fact, is the circulatory system of the world economy.
International firms, companies, banks and other organizations constantly need to change money at the market rate of exchange.
FOREX market, which is designed for this purpose, helps them to do this.
And indeed this market provides a set of various trade, investment and speculative operations with currency.
FOREX became a household name a few decades after the change of the Bretton Woods system of fixed exchange rates to a system of floating exchange rates of national currencies, when it became possible to exchange one currency for another without a strict peg to gold.
As a result of these transformations Central banks have acquired the ability to impact the formation of the national currencies, thereby affecting the economic situation in the country.
During this time, the market has become a complex and multi-faceted structure.
Forex is OTC market with ECN system
But it is important to understand that FOREX market is not an exchange market, but an OTC (over-the-counter) market of FX transactions, being a world-wide protected specialized network in the nodes of which there are small and large transnational banks and various electronic trading systems (ECN).
These banks perform the major foreign exchange operations on the instruction of exporters and importers, investment institutions, insurance companies and pension funds, hedgers and private investors.
And those, so-called dealing centres, through which the majority of traders sell, are the same clients for banking corporations as any other company such as IBM or SONY.
These banks also conduct operations for their own benefit and at their own expense: at that, daily transaction volume of major banks amounts to billions of dollars, and some banks even have a significant portion of profits generated by the speculative operations with currency.
Apart from banks, the brokerage houses are active participants of the market acting as an intermediary between a large number of banks, funds, commission houses, dealing centres, etc.
Commercial banks and brokerage houses do not only perform transactions of buying and selling currencies at prices that other active participants set forth, but also offer their own prices.
Thus, they actively influence the pricing process and the life of the entire market, that is why they are called market makers.
How Central Banks intervenes Forex market
In contrast to the active participants, the passive market participants cannot set forth their own quotes, and they purchase and sell currencies at the prices offered by active market participants.
Passive market participants generally pursue the following objectives: the payment of export-import contracts, foreign manufacturing investments, opening of branches abroad or establishment of joint ventures, tourism, speculation on the difference in rates, foreign currency hedging, etc.
Central banks go to FOREX, as a rule, not for profit, but in order to verify the stability or correct the existing rate of the national currency, as the latter has a significant impact on the economy of the country.
Central banks are also entering the foreign exchange market through commercial banks.
Although profit is not the main objective of these banks, unprofitable operations do not attract them too; therefore the intervention of central banks is usually disguised and carried out through several commercial banks at once.
Central banks of different countries can also carry out joint and coordinated interventions.
Role of Dealing Centers in Forex
If active participants make transactions with large sums of several million dollars, passive participants can use leverage or margin trade.
Using a small security deposit they are able to temporarily operate the capital exceeding it by hundred times.
This method of trading, usually through one of the so-called dealing centres, lets small investors with minor capital participate in the foreign exchange market and still make profit or loss.
A dealing centre is a non-bank entity that executes operations with foreign currency traders on its own behalf and at its own expense.
Dealing centres receive quotes from information systems (Reuters, Bloomberg, etc.), several sources of quotations are usually used for the formation of a consolidated stream.
On that basis their own quotes are formed and transmitted to their customers through trading platforms.
Trade through dealing centres is usually conducted using Internet as a communication system.
Immediate actions are performed with the help of specialized software, or by phone.
How is Forex Market so unique?
Do you know what makes the Forex market unique?
There are several key features of the Forex market that gives it inherent advantages over other financial markets such as equities and bonds.
1. Highly Liquidated Market
Due to the enormous scale of the Forex Market and the volumes that are traded on a daily basis a great deal of liquidity is created.
Liquidity is a trader’s best friend in any market.
The reason is that, every person or organisation willing to sell a currency has to have a counter-partner looking to purchase that same currency.
And there are almost countless number of investors ordering to buy or sell online in every second.
High levels of liquidity ensures that buyers and sellers in most cases can find the appropriate match.
Forex market is trade over 4 trillion USD a day, and that proves how highly liquidated the Forex market is.
24 hours and 5 days a week, you can buy and sell any currencies at anytime.
2. Access to all Forex easily Online
At any online Forex brokers, it is easy and free to open a live trading account.
Now there are hundreds of online Forex brokers in the world, you can open Forex trading accounts with any of them online.
No physical documents or visit to the company is necessary.
Once the account is opened, you can make a deposit and fund your trading account in any method you like.
There are over a hundred of payment methods available.
Then, you can start trading online over hundreds of different currency pairs directly.
All you need is internet connection and some funds to invest with.
Forex trading is very easy and simple now.
3. The Forex Market Never Sleeps
The Forex market being off exchange can be traded around the clock.
Apart from weekends, 25th December and the 1St January one can trade the Forex Markets day or night.
Daily news releases such as the United States Non-Farm Payrolls, Australian Monetary Policy Meeting Minutes or the German ZEW data will add volatility to the market.
As these major news events are continuously and consistently happening every day or night, one could realistically never leave their trading terminal.
Trading 24 hours a day, that is possible in the Forex market.
4. High Leverage to Increase your opportunity
An investor uses leverage to amplify the effect of an open position.
This is achieved by borrowing funds from their broker so as to increase the open exposure.
The majority of equity markets make available leverage levels of 1:2. Forex Brokers however can typical offer levels of leverage in excess of 1:100 and in some cases 1:500.
The highest leverage in the world is 1:3000, which is truly extraordinary.
The scale of this leverage allows an investor to capitalize on both small and large moves in the Forex Market.
There is a flip side being that high levels of leverage can also magnify the size of an investor’s loss.
You can even deposit only a few dollars and start making trades in the Forex market.
Forex market gives you the greatest trading opportunity to earn large profits with this high leverage.
5. Low or Free Commissions
Trading Forex will cost you very little.
The average trading cost is around 10 USD per 100,000 dollars of trading.
Unlike many agencies of other financial markets, you do not need to pay for the according to the percentage of your profits.
With many online Forex brokers, a trader will see an all in price where cost of doing business is charged as a spread.
The spread is the difference between the price an investor would sell at and the price an investor would buy at.
This is also known as the bid and offer price.
There may be a case where an investor is charged a small fee for hold a position overnight.
This is known as the Swap and relates to interest charged for leveraged positions held overnight.
Risk Management
At times the Forex market can become overly volatile such as the 2015 Swiss Franc event.
An investor is able to manage this risk by placing both automated stop and profit targets.
Furthermore many broker have taken the bold move to guarantee that an investor’s negative open position will never exceed the value of the account equity on deposit.
3 Main Forex Market Sessions – Asian, European and American
1. FOREX Asian session
Night 00-00 to 6 a.m. (Moscow time).
In these hours mainly Asian and Oceania countries trade, where Japan, China and Australia are the main players.
For the most part, trade during this time is not very active, big movements are rare.
There are cases of relatively big movements of profile Asian currencies, with the exit of important data in Japan, Australia or New Zealand. This occurs typically at 3 a.m. or 4 a.m.
Early morning hours, from 6 a.m. to 9 a.m. are one of the quietest periods of trade, since the Asian FOREX session is coming to an end, and the European traders are only waking up.
2. FOREX European session
Morning from 9 a.m. to 12-30 a.m. One of the most critical periods of trade.
Europeans have already woken up, someone has already started working, currency speculators become active.
Usually, at this time the movement, dominant throughout the following day, is born.
It is recommended to carefully monitor the market at this time and pay attention to the fact that the important statistics for the euro-zone comes out at 12 a.m. – 1 p.m.
Day period from 12-30 p.m. to 4 p.m. From 12-00 p.m. British traders enter the market and pounds trade comes forth.
As a rule, from 1 p.m. to 2 p.m. the important statistics in Britain comes out, which can move the market in one direction or other.
In most cases, the movement that originated in the morning survive by this time, but there are exceptions caused by statistical data of Europe or the UK.
3. FOREX American session
Evening, 4 p.m. to 9 p.m. The most “hectic” time at FOREX.
The American banks, large hedge funds, investment banks and funds are joining in with the global exchange process.
Entry of large financial resources into work during the U.S. session can reverse any movement that existed from the morning and establish its own.
Almost all important news in the United States come out at 4-30 p.m., Moscow time.
It is recommended to take into account their availability as of each specific day, their importance and the so-called sentiment-mood and the background of market expectations in whole.
After publication of news, the market can be moving very actively.
Closer to 9 p.m. the activity is gradually decreasing.
