Chapter 8: Forex Mode of Operation

Despite the fact that the Forex currency market operates around the clock, there are certain time periods in which it is more or less active with regard to operations with certain currencies. This is explained by the working hours of the main financial markets of the world.

We all know about the existence of time zones, and Russia is a unique country in this respect – its territory lies in 10 time zones at once. This means that at one and the same moment of time in different cities of the world local time differs, and day in one place of the planet can mean night in another. For convenience in time orientation the concept of Greenwich time or world time was introduced, which is denoted GMT (Greenwich Meridian Time). GMT is a local time in the vicinity of the Greenwich (zero) meridian. These vicinities from European countries include the United Kingdom and Portugal.

As a Forex trader you can be anywhere on the planet, but it is important to know exactly what time zone you are in and how your local time relates to the local time of the major financial centers of the world. The figure shows a world map where each color identifies a time zone.

From West to East (from left to right on the map) the time zones change as follows relative to GMT:

-12	-11	-10	-9	-8	-7	-6	-5	-4	-3	-2	-1	0	+1	+2	+3	+4	+5	+6	+7	+8	+9	+10	+11	+12

It is worth noting that some countries practice daylight saving time, so these countries will be in two neighboring time zones at different times of the year. The figure shows the time zones corresponding to winter time.

All activity on the Forex market is conditionally divided into 4 trading sessions: Pacific, Asian, European and American. Each session is active during the working hours of the corresponding region.

The Pacific session starts first, when financial markets in Wellington (New Zealand) and Sydney (Australia) begin their work. Almost immediately after it the Asian session begins, when Tokyo (Japan), Hong Kong (Hong Kong) and Singapore (Singapore) wake up. The most active trades during these sessions take place with the participation of the English pound sterling: GBP/JPY, GBP/CHF. In addition, such pairs with the U.S. dollar as USD/JPY, AUD/USD and NZD/USD are traded, as the opening of the Asian session is accompanied by the closing of the U.S. session of the previous day. The euro is hardly traded until the opening of the European session in London.

 

By the close of the Pacific and Asian session, the European session begins. The largest financial centers of Europe wake up in London (Great Britain), Frankfurt am Main (Germany), Zurich (Switzerland). London is the largest financial center of the world, where up to 30% of all trades on the international currency market take place. During the European session pairs with the British Pound Sterling (GBP) and Euro (EUR) are actively traded. The Japanese Yen (JPY), on the contrary, loses its attractiveness during the trading day. In addition, pairs with the U.S. dollar are traded: USD/CHF, USD/CAD, EUR/USD.

By the middle of the European session the American session starts with the opening of the largest financial centers in New York (USA), where up to 15% of the world Forex trading volume takes place. Most transactions are made during the simultaneous activity of the European and American sessions, when the liquidity of such pairs as USD/CHF, GBP/USD, USD/CAD and EUR/USD is high. By the middle of the American session, when Los Angeles wakes up, the European session ends, so the liquidity of the trading market for European cross rates (EUR/GBP and EUR/CHF) falls. Experienced traders almost never trade these pairs during the American session.

Depending on the summer or winter season, the time in different financial centers of the world will differ from the GMT world time by the number of hours shown in the following table.

Financial Center	Hour difference from GMT time
	In the winter	In the summer
Wellington	+11	+12
Sydney	+9	+10
Tokyo	+9	+9
Hong Kong	+8	+8
Singapore	+7	+8
Moscow	+3	+4
Frankfurt am Main	+1	+2
Zurich	+1	+2
London	0	+1
New York	-5	-4
Los Angeles	-8	-7

The table shows that not all countries practice daylight saving time, as they are in the same time zones in winter and summer.

When working on Forex, in addition to the activity of the main financial centers of the world during the corresponding trading sessions, one should also take into account the fact that financial centers are closed on Saturday, Sunday and official holidays. The activity of work on the world currency market on these days is minimal, and therefore the liquidity is low. The market as if freezes in expectation. Even the market reaction to significant events in the world is postponed until Monday (the next working day). That is why experienced traders try to close all open positions on Friday (opening and closing positions will be described later) to avoid unforeseen movements of currency rates caused by events that occurred in the world over the weekend.

On Monday, Forex is usually in a waiting state and there is no active trading. Participants are only trying to determine the dominant trends of rate changes. On Tuesday, active trading begins, which lasts until the end of Friday’s American session.