The London Forex Market and its Importance
The London trading session holds a significant position in the forex market, accounting for approximately 35% of total average forex turnover. This dominance makes it the largest trading session in terms of volume compared to its peers. One notable aspect of the London forex session is its overlap with the New York session throughout the year, creating a period of increased trading activity and opportunities for traders.
What Time Does the London Forex Market Open?
The London forex market operates between 3:00 AM ET and 12:00 PM ET. These hours mark the peak trading period for the London session, witnessing the highest forex volume among all the trading sessions. It is important to note the following time intervals in Eastern Time (ET) to understand the timing and overlaps:
- Open: 3:00 AM ET
- Close: 12:00 PM ET
- Overlap with Asia session: 3:00 AM – 4:00 AM
- Overlap with New York session: 8:00 AM – 12:00 PM
Top Three Things to Know About the London Trading Session
1. The London Session is Fast and Active:
The London session follows the relatively slower Tokyo market, leading to a sudden increase in volatility as prices start moving based on liquidity providers located in the United Kingdom. This surge in price movements translates to higher volatility levels compared to other trading sessions. Major currency pairs, such as EUR/USD, exhibit larger average hourly moves after the Asian session closes, making London session trades more promising for traders seeking substantial price fluctuations.
2. Look Out for the Overlap:
The London session and the US session overlap between 8:00 AM ET and 12:00 PM ET. This four-hour period witnesses significant market activity as both London and New York, which are among the largest market centers globally, contribute a large amount of liquidity to the market. Traders can expect quick and substantial market moves during this overlap, offering potential trading opportunities for those utilizing break-out strategies.
3. High Liquidity:
The London forex session stands out as one of the most liquid trading sessions. Due to the high volume of buying and selling, traders can benefit from extremely low spreads when trading major currency pairs, such as EUR/USD, USD/JPY, GBP/USD, and USD/CHF. This liquidity-driven market allows day traders to focus on trends and breakouts that can help reduce the impact of spread costs.
What Currency Pairs Are the Best to Trade During the London Session?
While there are no “best” currency pairs to trade during the London forex market hours, certain currency pairs tend to experience reduced spreads due to high trading volume. The major currency pairs, such as EUR/USD, USD/JPY, GBP/USD, and USD/CHF, attract significant trading volume during the London session, making them more favorable for traders. Additionally, currency pairs like EUR/USD, USD/JPY, and GBP/USD are particularly affected by the overlap between the United States and Europe/London sessions, introducing a higher level of liquidity and increased average movement during this time.
How to Trade Breakouts During the London Session
Trading breakouts during the London session follows a similar approach to trading breakouts during any other time of day. However, the London session offers the advantage of anticipating a surge in liquidity and volatility at its open. Breakout traders often seek firm support or resistance levels to identify potential trades.
For example, a rising wedge pattern, characterized by a trend line with a resistance level finally breaking, can present a breakout opportunity. Traders can manage risk effectively by placing stop-loss orders close to the trend line. This setup allows for limited losses if the support/trend line breaks, while potentially achieving a positive risk-reward ratio if the strategy prevails. With increased liquidity and volatility during the London session, the chances of successful breakouts tend to rise.
London Session Trading Strategies and Tips
When trading during the London open, it is crucial to remain cautious and adjust leverage appropriately. The volatility and liquidity during this session can significantly impact trades. For those new to forex trading, it is advisable to download educational resources like the “Forex for Beginners” trading guide to gain a comprehensive understanding of the basics.
Additionally, here are some key tips for trading during the London session:
- Expect increased liquidity and volatility during this session.
- Opportunities for breakouts are likely to be more frequent.
- Pay attention to the overlap between the London session and the New York session for potential spikes in volatility and liquidity.
It is essential to acknowledge not only the characteristics of the London trading session but also those of the New York session and the Asian session. Each session holds its own unique attributes that traders should consider when formulating their forex trading strategies.
By understanding the dynamics of the London trading session, traders can capitalize on the increased volatility and liquidity to maximize their trading opportunities and potentially achieve favorable results in their forex endeavors.