FX market hours and liquidity
With indices, shares and most other financial products that are traded on various global exchanges, you can only make trades during the exchange’s business hours. Fortunately for FX traders, currencies are free of this restriction and can be traded day or night, with the FX market hours being open 24 hours a day, 5 days a week.
Capturing trading opportunities around the clock
Because the FX market does not have a physical location or a central exchange, it is considered an Over-the-Counter (OTC), or "Interbank", market due to the fact that the entire market is run electronically, within a network of banks. This means that you can place trades through your broker 24 hours a day and trade at a time that’s convenient for you.
Below you can see a 24 hour period which shows the active trading sessions of the Interbank and Retail FX markets, using London as the time zone as this is the central hub to FX trading.
The highest volume of trading activity happens during the London session (as it also has Europe as well) but liquidity is at its highest when New York opens and overlaps with the London session. This is referred to as the ‘Nylon’ session (New York and London) when liquidity and trading volume is at its highest. Therefore we can expect larger moves and is an ideal time to trade breakout strategies. This is a popular time for intraday traders to participate as due to the higher volume and liquidity, spreads are at their tightest so transaction costs for the traders is lower.
Whilst New York and London are considered important trading centres the same can also be said for Tokyo, Hong Kong and Singapore. As London and New York banks close their official trading sessions, the Asian banks open and trade which is why the FX market is seen as a 24 hour market. However the volume is not as high as the Nylon session which means we tend to see smaller price movements and wider spreads.
The visually show you the changes in liquidity around a 24 hour period the chart below has a 14 period ATR indicator (Average True Range). This is a proxy for volume and each horizontal line represents 24hrs. We can see that during the Asian session volume and liquidity is at its lowest and increases when Europe and London opens, with the peak during the Nylon session. Whilst it is not precise to the hour or minute I hope this demonstrates the daily cycle of increasing and decreasing volume.