How to Choose Trading Session for Each Forex Pair (2024)

What is a currency pair?

A currency pair is the quotation of two different currencies that constitutes a currency rate and acts as an object of operations in Forex. The view of the currency pair is:
“Base currency/quote currency”

The base currency is always on the left while the quote currency is on the right and it expresses the price of the base currency. A trade operation means that the trader buys or sells the base currency against the quote currency.

For example, the EUR/USD (Euro vs US dollar) currency pair:

EUR is the Euro base currency and USD is the US dollar quote currency. The current exchange rate is 1.019 meaning that 1 Euro costs 1.019 US dollars.

The characteristics of major currency pairs

Forex is the world’s largest financial market and it features an enormous number of currency pairs. The most popular pairs which contribute the largest world trade volume are called major pairs. These currencies are the:

USD (US dollar), EUR (Euro), JPY (Japanese Yen), GBP (British Pound Sterling), CHF (Swiss franc), AUD (Australian Dollar aka Aussie/Ozzie), NZD (New Zealand dollar aka Kiwi), and CAD (Canadian dollar aka Loonie). The Chinese Yuan should be included among major currencies however, its rate is controlled by the Chinese central bank.

EUR/USD: is the most popular traded currency as the trade volume of the currency is the most among other major pairs, the spread is small and volatility is average. The pair is most active during European and American sessions and reacts to the news in the Eurozone.

USD/CHF: Most often it trades counter the EUR/USD. The Swiss Franc acts as a safe haven accordingly it moves down during the crisis. The pair is most active during European and American sessions.

GBP/USD: This pair is popular among traders. It may act in strong movements demonstrating several patterns or trigger nearby Stop Losses by false breakaways as it embeds high volatility. Adding, the pound reacts dramatically to political events and economic data in Britain. The pair is most active during the European and American sessions.

USD/JPY: The Japanese yen is quite a peculiar currency that might move counter all other major pairs. Same as the Swiss Franc, It is a safe-haven asset, so it is subject to decline during crises and, vice versa. The pair is most active during the Asian session.

USD/CAD: The CAD is a commodity currency; its movements correlate with oil prices. The growth of oil drags down the pair, while the falling of oil pushes it up. It is most active during the American session.

AUD/USD and NZD/USD: These currency pairs have very similar behavior. Normally, they are calm, influenced by the prices of metals and powdered milk. They are most active during the Asian session.

Cross currency pairs are currency pairs that don’t include the US dollar either as a base nor quote currency. These pairs are:

EUR/JPY, GBP/JPY, EUR/GBP, EUR/CHF, GBP/CHF, EUR/CAD, GBP/CAD

Popular Exotic and regional currency pairs are: USD/ZAR USD/MXN and USD/TRY

What and when to trade currency pairs:

1- Trading volume:
Trading volume increases during trading sessions related to the subject pair. The USD/JPY, AUD/USD, and NZDUSD acquire their highest volatility during Asian sessions. The EUR/USD, USD/CHF, and GBP/USD during the European session and, the USD/CAD during the US session.

2- Volatility
Volatility is the fluctuation range of a currency pair during a certain time. Most often, we evaluate it on the daily chart. Some currency pairs trade in a relatively narrow range, while others acquire a wide range. The higher the volatility of a pair, the larger the possible profit targets and stop loss levels.

3- Trade cost:
In Forex It is called “spread”, which is the difference between the ask and bid price of the base currency to the quote currency for both buying and selling. Major pairs have minimal spread as they are the most traded followed by cross pairs and then the exotic ones which impose the highest spreads.

Forex market business hours:

Forex is an over-the-counter market, meaning that there is no centralized forex exchange. Instead, forex trading is made possible through an international web of banks, brokers, and market makers. The forex market opens five days a week, eight hours per day for each trading session, that’s why traders are able to trade forex 24 hours. The Asia-Pacific session opens first, followed by the European (London) session, and then finally, North America. The four major forex market hours are:

- Sydney: opens at 10 p.m. GMT and closes at 7 a.m. GMT
- Tokyo: opens at midnight GMT and closes at 9 a.m. GMT
- London: opens at 8 a.m. GMT and closes at 4 p.m. GMT
- New York: opens at 1 p.m. GMT and closes at 10 p.m. GMT

The Tokyo session overlaps with Sydney session since two trading centers are open for five hours simultaneously. The USD/JPY, NZD/USD, AUD/USD and the AUD/JPY would include lots of liquidity thus huge trading volume.

During London session, major forex pairs are the most traded such as GBP/USD, EUR/USD and the EUR/GBP cross. The Tokyo- London session includes lower volumes and liquidity than the London New York session as it trades for fewer hours.

The New York session has the biggest overlap with the London session accordingly the GBP/USD cross can be highly liquid. In this session, most USD pairs and crosses experience their highest volumes noting that the USD includes almost 40% of all daily forex trades.

Regardless of whether this currency pair is a major, cross or an exotic one, it is important to know that financial data has an impact on the pair’s trend and volatility. To mention a few, interest rate, CPI, and PMI data would affect currency movement.

The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.

How to Choose Trading Session for Each Forex Pair (2024)

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