Despite the fact that Forex operates within 24 hours, there are certain time frames during which it can be more or less active in relation to transactions with different currencies. It can be explained by the working hours of the world’s major financial markets.
It is common knowledge that there are time zones. When it comes to Russia, it is a unique country with its territory stretching over 9 time zones. It means that at one moment the local time varies in different cities of the world, and the day in one part of the planet may mean night in another one. For the sake of convenience, Greenwich time or coordinated universal time, denoted as GMT (Greenwich Meridian Time) was introduced. GMT is a local time in the neighbourhood of the Greenwich (mean) meridian. This neighborhood includes such European countries as Great Britain and Portugal.
As a Forex trader you can be in any part of the world, but it is essential to know which time zone you are in and how your local time corresponds to the local time of the global financial centres.
It is worth noting that in some countries daylight saving time is practiced, so in different seasons such countries will be in two neighbouring time zones. Winter time zones are illustrated in the picture.
The activity on the Forex market is divided into 4 trading sessions: Pacific, Asian, European and North American sessions. Each session is active during the working hours of the region concerned.
The Pacific session starts first when financial markets of Wellington (New Zealand) and Sydney (Australia) open. The Asian session is next to open, including Tokyo (Japan), Hong Kong (Hong Kong) and Singapore (Singapore). The most active trading during these sessions is fixed with the British pound: GBP/JPY, GBP/CHF. Besides, the following pairs that include the US dollar are also traded: USD/JPY, AUD/USD and NZD/USD, since the opening of the Asian session is followed by the closing of the North American session of the previous day. The euro is almost not traded prior to the opening of the European session in London.
The European session starts at the close of the Pacific and Asian trading hours. The major financial centres of Europe start in London (England), Frankfurt/Main (Germany) and Zurich (Switzerland). London is the world's largest financial centre representing 30% of all FX trading volume. During the European session pairs with the British pound (GBP and Euro (EUR) are actively traded. The Japanese yen (JPY), on the contrary, loses investor appetite for it during the trading day. Additionally, the following pairs are traded with the US dollar: USD/CHF, USD/CAD, EUR/USD.
In the middle of the European session the North American market opens its gates starting from the financial centre in New York (the USA), roughly 15% of the global Forex trading volume takes place here. Most of the trades are executed within the operating period of both European and North American trading sessions, when the liquidity of such pairs as: USD/CHF, GBP/USD, USD/CAD and EUR/USD is great. By the middle of the North American trading hours when Los-Angeles wakes up, the trading in Europe stops, that is why the liquidity of the European cross-rates (EUR/GBP and EUR/CHF) falls. Experienced traders almost do not trade these pairs during the North American trading hours.
In summer or winter season the time in different financial centres of the world differs from the universal time GMT by number of hours shown in the table below:
The financial centre: the hour difference from GMT: Winter/Summer:
Hong Kong: +8/+8
New York: -5/-4
Los Angeles: -8/-7
As can be seen above, not all these countries use daylight saving time although they share the same time zone in winter and summer.
Trading on Forex, you should take into account not only the activity of major financial centres during the trading sessions, but also remember that the financial markets are closed on weekends and public holidays.
The global exchange market's activity slows down these days, consequently, the liquidity reduces too. The market as though freezes in anticipation. Even the market’s reaction to essential global events is delayed till Monday (next working day). That is the reason why professional market players try to close all opened positions on Friday (we will talk about opening and closing the positions later) in order to avoid unexpected currency rate fluctuations caused by events happening on weekends.
On Monday, Forex usually is in waiting and there are no dynamic deals. The participants just try to determine dominating trends of rate movements. From Tuesday active trading starts and it lasts till the end of the Friday’s North American session.