Trading the 24-hour forex market

There are three major forex trading sessions which make up the 24-hour market: the London session, the US session and the Asian session.

Although the forex market is one of the most liquid of all asset classes, there are periods whereby volatility can be constant and others, subdued. Understanding these different forex session times can help you improve your strategy.

In this lesson, we’ll explore how to take advantage of trading FX around the clock.

What are the main forex trading sessions?

The forex market is seen as highly functional/dynamic during the three major trading sessions: Asian (Tokyo), European (London) and USA (New York). This is because that’s when major banks, institutions and retail traders are usually operational.

Noting the specific times of each trading session can help you develop trading strategies that take advantage of this data.

Why does the FX market trade 24 hours a day?

The forex market is able to stay open 24/5 because forex trades over the counter (OTC). It doesn’t trade at one central location – like on an exchange, where there are fixed operational times.

Trades are carried out using electronic communication networks (ECNs) in different locations around the world, mostly offered by big banks, and for a variety of different players. When one region’s business hours end, another’s open – which allows currencies to trade continuously until the weekend.

However, this doesn’t mean the market is always liquid. There are specific times during the day when trading volume is high. Many traders usually trade during these times of high liquidity as they tend to offer more opportunities.

What does 24-hour forex trading involve?

The majority of foreign exchange transactions are done by big financial institutions and dealers – only a small portion is done by retail traders. These traders therefore aim to participate in the market during times of high liquidity, which is usually during major sessions and during the overlap.

The overlap is a four-hour period from 8am (ET) to 12pm (ET) when the New York session and the London session overlap, normally leading to increased liquidity and volatility in the market.

You don’t need to be active 24 hours a day to take advantage of price movements in global currencies. You might only need to pick a time that suits you and stick to a trading strategy.

Below are a few tips on things to consider before entering a market.

1. Holidays

Because the forex market is divided into sessions, they each have different holidays. If America has a bank holiday coming up, then the amount of US dollars traded will likely be small. Despite this, the forex market doesn’t stop as there’ll be other opportunities to trade in other regions

2. Employ different strategies for different sessions

Each forex market session has different characteristics. You might then consider adapting your trading strategy to suit these different conditions.

During the London and New York session, you can use breakout strategies to identify key entry and exit points. And during lower volatility sessions (like the Asian session), you can think of using range bound strategies that seek to buy near support levels and sell near resistance points.

3. Trading major currency pairs

Major currency pairs like EUR/USD, USD/JPY, GBP/USD, EUR/JPY, GBP/JPY and USD/CHF trade in high volumes, which means they tend to offer lower spreads and costs for traders. It may serve you to target these pairs in order to profit from their high activity

In the next few lessons, we’ll take a deeper look at how you can trade around different sessions opening times.