Compared with the traditional stocks and futures markets, the foreign exchange (forex) market has many advantages, the most obvious of which is 24-hour continuous, uninterrupted trading. The leading force in terms of capital investment when trading the markets is office workers, who rarely have the time to trade and watch the markets during the day. Once you get home from work at 6 or 7 o'clock, the stock market and futures markets have already closed, and you can't trade even if you want to trade.
However, market volatility becomes increasingly high for the foreign exchange market at six or seven in the evening. Instead of watching some boring soap operas and other shows, it is better to open your MT4 trading platform to participate in the online trading battle where you can make some extra income if you win.
Well, the longer the opening time, the lower the overnight risk for traders. For example, China’s A-share market only opens for 4 hours a day, and the stock index futures trading is only extended by 30 minutes. For the remaining 19.5 to 20 hours, the market is closed.
If there is a big news event that affects the market during the closed period, traders cannot open and close positions at that time, which will cause them to miss opportunities or have no chance to minimise their risk exposure.
There is an unwritten rule in the A-share market; significant policies and regulations will be released during the market’s closure. The official reason is to "maintain stability", but the call auction during pre-market trading is unavailable for every trader.
The trading hours for the commodity futures market are longer but only cover a 5-hour cycle, and the remaining 19 hours of the day represent high-risk conditions.
If the A-share market is less affected by international news, the commodity futures market is usually heavily dependent on international news releases. You should be aware that there is no domestic pricing power for gold and silver trading, soybean, corn, crude oil pitch and other commodities. Their rise or fall depends mainly on the supply and demand patterns within the international market.
How is the 24-hour continuous trading in the foreign exchange market realised?
In the foreign exchange market, we usually divide the 24 hours into three periods, namely: the Asian session (Tokyo main quotation), the European session (London main quotation), and the U.S. session (New York main quotation), these three periods rotate in turn constituting a continuous quotation curve in the MT4 platform.
The three sessions are connected via continuous quotes submitted via data exchanges to make up a 24-hour trading cycle.
Asian trading session
As the earth rotates from west to east, at the beginning of each week, Asia will enter Monday first, while Europe and America will start their Monday’s later according to the time difference. Based on this, the forex trading market opens on Monday in Asia, with the first quotes coming from Wellington, Australia in Asia. The markets will then close on Friday, with the final quotation coming from New York in North America.
Traders need to keep in mind that because of the time difference, for Chinese traders, the opening time on Monday is not 0:00 in the morning, but 6:00 in the morning (winter time)/5:00 (daylight saving time); Friday the closing time is not 24:00, but 4:00 (winter time)/3:00 (daylight saving time) on Saturday morning. According to the order of daybreak, the cities that provide market quotes are Wellington, Sydney, Tokyo, Hong Kong, Singapore, Frankfurt, London, and New York in the day’s cycle.
It is generally accepted that the Asian trading session ends at 16:00 (winter time)/15:00 (daylight saving time), which is also the last time for Singapore's quotation.
European trading session
The main quotation city during the European session in London, but Frankfurt, Germany provides the initial quotation since its dawn is one hour earlier.
The beginning of the European market marks the end of the Asian market, both at 16:00 (winter time)/15:00 (daylight saving time), after eight hours, until 24:30 (winter time)/23:30 (daylight saving time), the European session ends.
Because the foreign exchange market is mainly traded in US dollars and other direct currencies, it is customary to believe that its volatility during the Asian session is relatively tiny. Therefore, only after the opening of the European market can a day's trading truly begin.
The above is quite true. The Asian trading hours have relatively small fluctuations and tend to be opposite to the trend direction. For example, suppose the EURUSD closes in the positive direction during the Asian session. In that case, the overall probability of closing in the negative at the end of the European and US sessions is relatively high.
There are also some exceptions, such as USDJPY, AUDUSD, NZDUSD, USDHKD, etc., because they include Asian currencies, so their volatility in the Asian session is usually quite decent. However, the overall volatility is still not as good as during the European and American sessions.
Based on this, intelligent traders tend to wait and see during the Asian market and only execute their trading plans when the European market opens at 4:00 pm in Asia.
US trading session
The central quotation city during the US market is New York, and its online time is 21:30 (winter time) / 20:30 (summer time) Beijing time, and the offline time is 4:00 (winter time) / 3:00 the next day (daylight saving time).
Since the European market is still open at eight o'clock in the evening, there is an overlap of more than three hours between the European market and the US market. In theory, the volatility of this overlapping time is the greatest on most days, but this is strictly theoretical because many factors affect exchange rate volatility, and the "period" does not play a decisive role.
As mentioned earlier, US dollar trading is the mainstream of the foreign exchange market, so the highest volatility in the entire foreign exchange market is during the US market.
Regrettably, the U.S. market is exactly midnight in Asia, and very few people can conduct highly intense trading during this period of the day. To tackle this problem, Expert Advisors, which are automated trading strategies, are very popular in the foreign exchange market. People take a break and let the automated program watch the market. This is not only applicable to the U.S. market period but applies to all periods given the 24-hour trading cycle.
In addition, there are two crucial periodic data points released during the US market, one is the non-farm payrolls report, and the other is the Federal Reserve interest rate decision. The announcement time of the former is mostly at 21:30 (winter time)/20:30 (daylight saving time), and the announcement time of the latter is mostly at 3:00 (winter time)/2:00 (daylight saving time).
Even if a trader does not have the energy to keep an eye on the markets during the U.S. session every day, they might need to stay up and monitor the two major monthly releases. The non-farm payrolls and the FOMC interest rate decision, given that they usually have a significant impact on the financial markets.
Winter and summer are frequently mentioned above; here is a brief introduction to the two concepts. As we all know, summer dawns earlier, so to save energy, Europeans will adjust their clocks one hour earlier when daylight saving time comes.
It dawns late in winter, so the clock will be adjusted to a normal state when the winter time comes. Therefore, the difference between winter time and daylight-saving time is always one hour, and daylight-saving time is earlier. To facilitate easier memory, the author gives you a simple way to understand winter time and summer time: summer time corresponds to the following months (5/6/7/8/9/10) 20:30; winter time corresponds to these months (11/12/ 1/2/3/4), each for six months.
For readers who want to accurately understand winter time and daylight-saving time, just remember one sentence: winter time starts on the last Sunday in October; daylight saving time begins on the last Saturday in April.