Advertorial — Forex (for FOReign EXchange) refers to the global foreign exchange market on which currencies from around the world are constantly exchanged. Its participants speculate on the evolution of exchange rates between the main currencies such as the euro, the dollar, the pound sterling or the yen.
With a daily volume exceeding 6,500 billion dollars exchangedit is the largest and most liquid financial market in the world. Open 24 hours a day, 5 days a weekthis market allows traders to react to exchange rate fluctuations at any time.
Why target certain time slots in the Forex market
Not all hours of the day necessarily offer the same opportunities.
Indeed, Forex activity is punctuated by the opening and closing of major financial centers around the world. These different sessions determine the liquidity available for each currency as well as the price volatility.
However, liquidity and volatility are two crucial parameters in the stock market. Liquidity determines the trader’s ability to quickly enter and exit positions at desired prices. As for volatility, it influences the potential for gains (as well as losses) from market movements.
This is why it is essential to know the Forex time slots in order to only operate during the most favorable periods, taking into account the parameters of your strategy as well as your level of risk aversion.
In any competitive field, the competitive advantage enabling success comes from superior knowledge, both theoretical and practical. This is why, before embarking on currency speculation, novice traders will benefit from deepening their knowledge of how Forex Trading works.
The main time slots for currency trading
The Asian session
Asian session expands from midnightopening of the Sydney Stock Exchange, at 11 o’clock, French time, i.e. at the close of the Tokyo stock exchange. The latter opens and closes 2 hours after that of Sydney. Volumes are usually reduced and volatility limited compared to the European and American sessions. This time slot is therefore especially suitable for scalping strategies seeking to accumulate small profits on numerous very short-term operations.
The main trading opportunities focus on the Japanese yen and the Australian dollar. Macroeconomic announcements that could create price movements typically include Japan’s trade balance, China’s industrial production, and Australia’s unemployment rate and consumer price index. Apart from these statistical publications, the fluctuation ranges therefore remain narrow during this session.
The European session
Then comes the European session, the most important in terms of volumes processed, which extends from 8 a.m. to 5 p.m., French time. The major financial centers of London, Frankfurt and Zurich were then active. This time slot offers excellent liquidity conditions on all major currencies such as the euro, the pound sterling or the Swiss franc. It is often the highlight of the day for Forex traders. Directional opportunities are numerous, even if the volatility is less than in the American session.
The American session
The American session takes over from 3 p.m. to midnight, French time, when Wall Street is active. The volumes are particularly high there, generating high liquidity, but also more volatility. This time slot is conducive to more marked directional movements, but also exposes the trader to rapid fluctuations that must be controlled.
The economic statistics monitored during this session include the employment report (NFP), the consumer price index (CPI), the Purchasing Managers’ Index (PMI), manufacturing ISM and industrial production in the United States. The opportunities generated by peaks in volatility are concentrated in the dollar/euro, dollar/yen, dollar/Swiss franc currency pairs.
Nested sessions
Experienced traders also like to pay close attention to nested sessions, when two major markets are open simultaneously.The New York/London intersection between 3:30 p.m. and 5 p.m. thus offers maximum liquidity. Of course, the counterpart of these increased volumes is increased volatility and higher risks of significant price shifts when US economic statistics are published. Consequently, the trader who wishes to maintain an identical level of risk compared to other times of the day will necessarily have to reduce his exposure.
Good to know: The times indicated correspond to French summer times and are therefore likely to change when switching to winter time.
How to take advantage of the different time slots
Trading opportunities
Thus, each Forex time slot requires strategic adjustments in order to better exploit its opportunities while guarding against its specific pitfalls. For example, during the Asian session, low relative volatility could favor cautious scalping strategies and the accumulation of small profits, particularly on the yen and the Australian dollar.
European opening could generate gaps offering short-term directional opportunities. Its high liquidity facilitates market entries. The American session could prove conducive to larger directional movements, but also exposes it to high volatility that must be controlled.
Finally, for the same amount invested, Nested sessions maximize both opportunity and risk of loss due to increased volatility.
Risks to avoid
We should also note some unique risks.
The Asian session features variable spreads and reduced volumes on certain more exotic currencies, which risks impacting position entry and exit operations. The scalping trader must take this into account when calibrating his orders.
It is particularly during the American session that volatility skyrockets during the publications of major economic statistics such as the NFP or decisions emanating from the FOMC. The resulting exaggerated movements can simply wipe out capital in the event of imprudent management. High volatility is both a source of opportunities and an exacerbated risk.
In short, each time slot presents events and characteristics specific to knowing and anticipating in order to manage your capital more calmly.
Content offered by XTB
The Boursier.com editorial staff did not participate in the production of this content.