How Is The Trading Day Structured
Tuesday 2 November 2010
Since the forex market is open 24 hours per day, we can’t really say that the market opens or closes at a particular time of day. Unlike stock and futures markets, there is no “opening bell.”
Since we’ll be working with charts that require an opening price and a closing price, forex traders must designate a particular time of day as a benchmark. For most traders, the forex trading day begins at 5:00P.M. Eastern U.S. (New York) time, 10:00 P.M. London time. Because forex trades 24 hours per day, the trading day also ends at 5:00 P.M. New York time, 10:00 P.M. London time.
Why is this particular time used? Consider that when it is 5:00P.M. on Sunday in New York, it is Monday morning in Australia and New Zealand. According to the International Date Line, Monday morning reaches this part of the world before any other active forex trading area. Hence, it marks the beginning of the trading day.
Overall, volume is low at this time of day because the three biggest forex trading centers — Great Britain, the United States, and Japan — are quiet at this time. However, the Australian Dollar and the New Zealand Dollar may see some action during these hours.
The Asian Session
A few hours later, at around 7:00P.M. Eastern U.S. time, midnight London time, Japan awakens and the forex markets begin to stir. This is considered the beginning of the Asian session. Japan is the third largest forex trading center, and comprises about 10 percent of all forex trading volume. Many of the world’s major banks and hedge funds have offices in Tokyo. Activity in the Japanese Yen pairs begins to surge at this time of day.
The European Session
As the Asian trading day winds down around 3:00 A.M. Eastern U.S. time, European markets open for business, and the London trading day begins soon afterward. This is considered to be the beginning of the European session.
Great Britain is by far the most important forex trading market on the planet, and London is considered the world’s capital of forex trading. Roughly 30 percent of all foreign exchange volume comes from the trading desks of London.
The U.S. Session
At around 8:00 A.M. New York time, about halfway through the London trading session, U.S. forex traders come to life. This is considered to be the beginning of the U.S. trading session. New York is the second most important market in forex trading, and accounts for about 15 percent of the world’s total foreign exchange volume.
Trading is especially active early in the U.S. session, as it overlaps the European session. Now the two giants of forex, London and New York, are both in play at the same time. U.S. economic news releases occur in the early part of this session and can cause a tremendous amount of volatility. Exchange rates swing wildly as the market digests this new information.
Trading usually becomes aimless and choppy after midday in New York as the London session winds down, and liquidity and volatility begin to dissipate. By mid to late afternoon New York time, London traders have gone home for the day, and it is late at night in Japan. New York traders, while still active at this time of day, have already finished with the bulk of their trading.
Friday afternoons in the United States are generally the least active, because for much of the trading world, it is already Friday night or Saturday. The reduced liquidity often leads to “choppy” movements, because in an illiquid environment, orders that normally would not have the power to move exchange rates now can do exactly that.
Finally, as the U.S. markets close, a new trading day is just about to begin in the Western Pacific. The Australian and New Zealand markets begin to stir, starting the process once again. The cycle continues all week, with most trading desks closed from Friday afternoon until Sunday afternoon, Eastern U.S. time.
Since we’ll be working with charts that require an opening price and a closing price, forex traders must designate a particular time of day as a benchmark. For most traders, the forex trading day begins at 5:00P.M. Eastern U.S. (New York) time, 10:00 P.M. London time. Because forex trades 24 hours per day, the trading day also ends at 5:00 P.M. New York time, 10:00 P.M. London time.
Why is this particular time used? Consider that when it is 5:00P.M. on Sunday in New York, it is Monday morning in Australia and New Zealand. According to the International Date Line, Monday morning reaches this part of the world before any other active forex trading area. Hence, it marks the beginning of the trading day.
Overall, volume is low at this time of day because the three biggest forex trading centers — Great Britain, the United States, and Japan — are quiet at this time. However, the Australian Dollar and the New Zealand Dollar may see some action during these hours.
The Asian Session
A few hours later, at around 7:00P.M. Eastern U.S. time, midnight London time, Japan awakens and the forex markets begin to stir. This is considered the beginning of the Asian session. Japan is the third largest forex trading center, and comprises about 10 percent of all forex trading volume. Many of the world’s major banks and hedge funds have offices in Tokyo. Activity in the Japanese Yen pairs begins to surge at this time of day.
The European Session
As the Asian trading day winds down around 3:00 A.M. Eastern U.S. time, European markets open for business, and the London trading day begins soon afterward. This is considered to be the beginning of the European session.
Great Britain is by far the most important forex trading market on the planet, and London is considered the world’s capital of forex trading. Roughly 30 percent of all foreign exchange volume comes from the trading desks of London.
The U.S. Session
At around 8:00 A.M. New York time, about halfway through the London trading session, U.S. forex traders come to life. This is considered to be the beginning of the U.S. trading session. New York is the second most important market in forex trading, and accounts for about 15 percent of the world’s total foreign exchange volume.
Trading is especially active early in the U.S. session, as it overlaps the European session. Now the two giants of forex, London and New York, are both in play at the same time. U.S. economic news releases occur in the early part of this session and can cause a tremendous amount of volatility. Exchange rates swing wildly as the market digests this new information.
Trading usually becomes aimless and choppy after midday in New York as the London session winds down, and liquidity and volatility begin to dissipate. By mid to late afternoon New York time, London traders have gone home for the day, and it is late at night in Japan. New York traders, while still active at this time of day, have already finished with the bulk of their trading.
Friday afternoons in the United States are generally the least active, because for much of the trading world, it is already Friday night or Saturday. The reduced liquidity often leads to “choppy” movements, because in an illiquid environment, orders that normally would not have the power to move exchange rates now can do exactly that.
Finally, as the U.S. markets close, a new trading day is just about to begin in the Western Pacific. The Australian and New Zealand markets begin to stir, starting the process once again. The cycle continues all week, with most trading desks closed from Friday afternoon until Sunday afternoon, Eastern U.S. time.
Labels:
About Forex And Beginning