Global Trading Sessions

In this lesson you can learn:

• Which periods during the trading session tend to be more volatile than others
• How liquidity and volatility could influence your trading
• What flash-crashes are and what could happen if they occur

One of the most exciting and interesting things about the financial markets is the fact that they are open 24 hours a day. This allows traders from all over the world - no matter what time-zone they’re in - to trade during work hours, after work or even at the night.

However, trading conditions are not always the same throughout the day. Some parts of the day - or a ‘session’ as they are often referred to - are different than others, and are characterised by greater volatility and bigger liquidity.

It’s virtually impossible to monitor your open positions at all times. With specific periods being more vulnerable to volatility, it’s important to know how your trades could be affected throughout the day, and minimise your risk accordingly.

When Does Activity Peak?

Generally, there are three established periods when activity typically rises. These are known as the:

• Asian session
• European session
• US session

They are often referred to as the Tokyo, London and New York seassion, because these three cities are the biggest financial centers in the world where large, influential institutions are located. When a session in each of these locations opens, volatility rises and the market moves.

For example, when trading starts in London (around 8:00 am GMT), a bigger change in prices can occur. So, if you have an open position on EURUSD, you should be aware that the European session is about to begin.

Different instruments react differently to certain parts of each trading session. For example, a trader looking at the Australian dollar should know that the currency typically moves most during the Asian session, and again when Wall Street opens. On the other hand, if you trade the Turkish lira you should keep an eye on the market during the European session, but expect lower volatility during the Asian session.

This doesn’t just apply to forex trading - for example, being long or short the DAX means that your profit or loss will fluctuate between 8:00 am and 5:00 pm, but will likely move less over the European night. Each instrument has its own specification that you should know before you open a position.

Expect the Unexpected

Although lower liquidity usually leads to a stabilisation in the financial markets, it can result in so-called 'flash-crashes' from time to time. In October 2016, the British pound fell by more than 5% in a second after the US session closed, but way ahead of the start of the Asian session. A similar situation happened in March 2016 when the price of gold crashed, only to recover a few seconds later.

Such falls can happen for a variety of different reasons, and it’s important to remember that just because a market has acted in a certain way historically, this doesn’t mean it’s always going to exhibit the same patterns of behaviour. Make sure you’re always dedicating enough time to identify the current direction that the market is trending in on multiple timeframes.

Self-Knowledge Is Key

When trading currencies and CFDs, you need to first determine which style suits you and your trading personality best. Are you comfortable trading volatile markets on short timeframes, or do you prefer lower liquidity and holding positions over a longer period of time? Do you want to hold your trades overnight, over a period of weeks, days or months?

Decide how much time you can dedicate to trading, and find an approach that best fits you.