The foreign exchange market is operative 24 hours a day and this often makes it impossible for a forex trader to track every single movement of the market and act on an immediate basis. The fact that timing is everything in the world of currency trading makes things all that impossible for a trader to make the best moves at all possible times.
The above statement means that a trader is expected to note the amount of activity around the clock for maximizing the number of trading opportunities while attempting to devise an effective and time-efficient investment strategy. It is also worthwhile to note that the trading range of a currency pair (such as EUR/USD) is heavily dependent on macro-economic factors, liquidity, and geographical location. This means that a trader can expect profits coming his way by ascertaining what time of the day a currency pair has the widest or narrowest trading range.
Asian Market Session - 7PM-4AM EST
Tokyo is one of the first major Asian markets to open and is signified by the presence of major and large participants using trade momentum at the Tokyo Exchange for gauging market dynamics and devising their trading strategies. It is important to note here that foreign investment banks and institutional holders generate a considerable amount of transactions involving the USD/JPY when they enter the equity and bond markets in Japan.
For risk-tolerant traders, currency pairs like USD/JPY, GBP/JPY, and GBP/CHF are good options while AUD/JPY, USD/CHF, and GBP/USD are better choices for risk-averse traders.
U.S. Market Session - 8AM-5PM EST
New York exchange is the second largest marketplace for foreign exchange and encompasses around 19 percent of the total forex exchange market volume turnover. The majority of the transactions are expected between 8AM and noon, which is a period with high liquidity because of the presence of European traders.
GBP/USD, GBP/JPY, and USD/CHF are the best choice for the risk-tolerant traders while EUR/USD, USD/CAD, and USD/JPY are good options for risk-averse traders. The currency pairs GBP/CHF and GBP/JPY have the widest daily ranges.
European Market Session - 2AM-12PM EST
London is the world's largest and most important dealing center and encompasses a market share of more than 30 percent. It is worthwhile to note here that the majority of foreign exchange transactions are executed during London hours because of the high liquidity and efficacy of the market.
The currency pairs GBP/CHF and GBP/JPY are good options for risk takers as they have an average daily range of more than 140 pips. On the other hand, currency pairs such as USD/CHF, GBP/USD, EUR/USD, and USD/CAD are good options for risk-tolerant traders. Pairs like NZD/USD, EUR/CHF, AUD/JPY, and AUD/USD are good options for risk-averse traders.
The US-European market sessions overlap between 8AM-12PM EST and the foreign exchange markets, across the world, tend to be the most active during these hours. The range of trading constitutes on average 70 percent of the total trading average range for all the currency pairs during the trading hours of the European market and 80 percent of the total trading average range for all of the currency pairs during US trading hours.