When is the Best Time to Trade? Know the Asian, European & US Market Trading Sessions

By Chika

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Last Updated: April 18, 2022

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A trading session refers to the active trading hours of an asset or a given locale. Usually, different markets follow different trading hours, and a single trading day of a market is the trading session referenced by investors in a particular market.

Each market session exhibits a unique trait which affects the price action of assets being traded during that time. As such, each session offers varied risks and opportunities to investors and traders.

Understanding the unique characteristics of these trading session times can improve the efficacy of a trading strategy.

In this article, we will explore each of these market sessions including their key characteristics and  time zones, including how they affect trading.

7 Important Reasons Why You Should Have a Trading Plan

 

 

What are the Main Trading Sessions?

The global financial market is divided into three market sessions: Asian session (Tokyo), European session (London) and US session (New York). This is when financial institutions and retail traders are operational.

Noting the specific times of each trading session will assist in developing their trading strategies.

 

Asian Session

The Asian session is the first financial market to open. This session accounts for 6% of trading activity in the global financial market. Though it is known as the Tokyo session, trading activity resumes in the Sydney market which opens three hours before Tokyo. 

Activity for the Asian session is considered to run from 11:00 p.m. to 8:00 a.m. GMT. 

 

European Trading Session

London is the most active financial hub in Europe, and it hosts some of the world’s largest banks. Many market participants and high-value transactions in London make the session the largest and most important in the world, accounting for about 34% of the daily forex volume.

The high number of participants in the London market and value of the transactions makes the European session more volatile than sessions.

Other important markets in Europe are the German and French markets. The official trading hours for the European session from 7:30 a.m. to 3:30 p.m. GMT, and the period is expanded by the presence of other capital markets.

 

US Trading Session

The US trading session is the second largest trading market which handles approximately 16% of the world's global financial market transactions.

Many of the transactions in New York occur during the US/Europe overlap between 13:00 GMT and 17:00 GMT. As liquidity dries up and European traders exit the market, their American counterparts begin to resume in the market. 

When is the Best Time to Trade?

The optimal time to trade in a financial market (stocks, commodity, currency, bonds) is when it's at its most active levels.

This is because trading spreads tend to be much tighter when liquidity is high. In those situations, less money goes to the market makers facilitating trades, which reduces transaction costs and allows traders to pocket more money.

Based on this, the most liquid time in the market is during the overlap between the European and US sessions. This is when the two largest markets are both in session. The combined liquidity brings some volatile price actions.

This period accounts for 80% of the total average range of trading for all of the currency pairs during U.S. trading hours and 70% of the total average range of trading for all of the currency pairs during the European trading hours.

That being said, choosing a time to trade also depends on other factors such as geographic region and expertise. Traders, because of their locale, may not be able to trade in other market sessions.

 

What Other Factors Affect Market Trading Sessions? 

For example, a trader in Asia may find it difficult to trade the US session and vice versa because of the time when the markets open for trading in those regions.

Also, some traders have developed proficiency in certain markets because they understand its characteristics and unique dynamics. As such, they may be less inclined to trade other markets. 

Geopolitical reasons could also play a part in determining which market sessions are best to trade. Sanctions and political tension could have a bearing on the market's sessions making them more risky to rate than others.

For example, the Russian-Ukraine war has made European markets less desirable to investors due to the geopolitical tensions. 

Finally, monetary policy from the central bank can influence investor sentiment in certain markets and across asset classes. A tight monetary policy from a central bank could lead to a sell-off in equities markets, while in the currency market those markets would be bullish.

For example, the ECB's strong stance against rate hike, and BOJ's reluctance to tighten monetary policy increase rates has weakened the Euro and Yuan.

On the other hand, the hawkish stance from the Fed and RZB has seen the Dollar and Kiwi perform stronger in the currency market. 

Photo by AbsolutVision on Unsplash

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