The global expansion of markets has enabled people to trade various asset classes, including stocks and cryptocurrencies. For example, the forex market is open 24 hours a day, although trading volumes and opportunities can vary significantly across different global trading sessions. Understanding these sessions is crucial for determining the best times and assets to trade.
In this article, we answer the question: What is a trading session? Additionally, we will describe the main types of trading sessions.
What is a trading session?
A trading session refers to the hours during which a stock exchange is open, allowing traders to buy or sell assets such as stocks, currencies, and commodities.
The characteristics of the stock, bond, forex, and futures markets define their distinct sessions, each varying in timing and activity levels. The timing and type of trading period are vital for making investment decisions, planning strategies, and analyzing market performance.
A typical trading session consists of three stages: the pre-opening phase for order entry and modification, the active trading phase, and the closing phase, where final orders are processed. This structure allows traders to prepare, execute, and finalize their transactions within the defined market hours. How long does a trading session last? Typically, a trading session lasts for one business day, spanning from the opening to the closing bell of a local financial market.
Asset classes have varying trading hours globally, and traders must understand these to effectively plan their trading activities and daily transaction volumes.
Most global markets operate from Monday to Friday and close on weekends, with some exceptions based on local customs and holidays. The number of trading days per year varies by market and country. For example, the United States typically has about 252 trading days per year, with holidays impacting this count, although major holidays like Christmas can fall on different weekdays.
In contrast, other countries may see more variation in the number of trading days, requiring individual calculations based on local holiday schedules.
Asset prices and securities fluctuate at market open or close, influenced by corporate announcements that guide trading strategies.
As an example, the foreign exchange market fluctuates significantly, providing the opportunity to trade currency pairs during two or more overlapping trading sessions.
Market traders can employ support, resistance, or breakout strategies to capitalize on currency price changes during overlapping sessions. Various trading solutions display varying levels of volatility, affecting aspects of a session such as pip movements.
What factors influence a market session?
Market sessions can be influenced by a number of factors, including the following:
Both political and economic events
Economic data such as employment figures, GDP, and central bank decisions can significantly shape market dynamics. Investors should stay informed about financial sector news and anticipate major announcements to manage or mitigate volatility.
Political events and policy changes can also increase session volatility, compelling traders to closely monitor developments to strategically navigate market fluctuations.
Market overlaps
A market overlap occurs when two large markets are active simultaneously, increasing trading activity, liquidity, and volatility. Sentiment in one market can directly influence the other. Strategically waiting for market sentiment to stabilize before opening a position can be crucial for cost-efficiency.
Social networking
The internet has a considerable influence on both investment and news consumption, so it is vital that investors pay close attention to news portals that discuss the financial market. Equally, sites that offer investment recommendations in any asset class should also be considered important, as they can have an impact on a company’s shares.
Friday’s trading session
Many retail and institutional traders liquidate their stocks on Friday afternoons to avoid holding positions and taking risks over the weekend. This means that stocks can usually be sold in the last hours of trading if traders do not want to hold an open position. This factor is relevant, and both entry and exit times should be kept in mind, especially on Fridays.
Types of trading sessions
There are different types of market hours: ordinary, after-market, off-trading, and pre-market. Below we will take a closer look at each of them.
Regular
The regular session, also called the core session, is the most important trading period recognized by the world’s major exchanges, such as the NYSE and NASDAQ, lasting between 9:30 a.m. and 4:00 p.m. Eastern Standard Time (EST).
After-hours trading session
An out-of-hours trading session, also referred to as an extended trading session, occurs after the trading day of a stock exchange, providing the opportunity to purchase or sell stocks outside of normal trading hours. This method gives investors the possibility to react to news beyond regular trading hours, similar to the volatile pre-market period. Prices can change significantly after the release of results or news, so you need to know how to place an after-hours trade order to buy or sell quickly.
In the United States, normal after-hours trading hours are between 16:00 and 20:00 Eastern Standard Time (EST).
Pre-Market
The pre-market session is a mechanism for opening securities on a daily basis to minimize the effect of volatility and to determine the opening prices.
During the pre-market session, which is generally between 8:00 a.m. and 9:30 a.m. EST, orders are modified, filled or canceled, and customers may place limit or market orders. The order collection window can be closed at around 9.07 a.m. and 9.08 a.m., and the orders are checked and verified after closing.
Off-Trading
An off-trading session is understood as the extended trading period after the end of the regular session, which allows investors, primarily institutional, to adjust their positions and hedge trades made during the regular session. It starts at variable times and almost always ends at 5:00 p.m., with only transactions specified in the trade report being recorded.
Trading hours of the main sessions
Trading hours are governed by the time zones of the major financial cities: London, New York, Sydney and Tokyo. The four sessions have the highest levels of market activity, thanks to the considerable trading activity of the major banks and companies in these cities.
American session (New York)
This session, also known as the New York session, is a key part of global foreign exchange trading, accounting for 16% of total global foreign exchange volume. It begins after the close of the Asian session and in the middle of the European session’s trading hours, from 8:00 to 17:00 EST. This session is the last to start and is often characterised by high trading volume and volatility, especially during the opening and closing hours.
European session (London)
London, a major metropolis famous for its prominent position in the financial and banking sector, is home to some of the world’s largest banks. The London session, with 34% of daily foreign exchange trading volume, is considered the largest and most important in the world.
Its official trading hours are from 7.30 a.m. to 3.30 p.m. GMT, extended by the presence in the session of other capital markets such as Germany and France. The London session falls in parallel to the Asian and North American sessions and is known for its notable price fluctuations.
Asian session (Tokyo)
This session, also called the Tokyo session, marks the beginning of the market’s trading hours. Traders use it to design their strategies. It starts at 11:00 p.m. The start of the Asian session signals the beginning of market activity and may be influenced by economic releases from New Zealand or Australia.
Australian session (Sydney)
This session takes place Monday through Friday, starts at 3:00 p.m. EST and closes at midnight. It has low liquidity but extensive trading of currency pairs. Trading peaks at the open. Traders have a range of options available to them, including position trading, swing trading, scalping and day trading.
Conclusion
The importance of trading sessions cannot be overlooked in the business and finance sector, as they influence liquidity and share prices around the world. It is crucial to understand how different markets operate.
Depending on your location and the market you trade, you will need to know the opening and closing times and when it is a good investment opportunity to enter the market.
