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Trading Session

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Trading Session

A trading session refers to the specific hours during which financial markets are open for buying and selling securities, such as stocks, forex, commodities, and derivatives. Different markets operate in distinct sessions based on their geographical locations and time zones.

Understanding Trading Sessions

Each market has its own designated trading hours, typically structured into:

  • Pre-Market Session: Some markets allow trading before official opening hours.
  • Regular Trading Session: The main hours when most trades occur.
  • After-Hours Session: Extended trading hours after the market closes.

For example:

  • Stock Market (NYSE & NASDAQ):
    • Pre-market: 4:00 AM – 9:30 AM EST
    • Regular session: 9:30 AM – 4:00 PM EST
    • After-hours: 4:00 PM – 8:00 PM EST
  • Forex Market (24-hour cycle):
    • Sydney Session: 10:00 PM – 7:00 AM GMT
    • Tokyo Session: 12:00 AM – 9:00 AM GMT
    • London Session: 8:00 AM – 5:00 PM GMT
    • New York Session: 1:00 PM – 10:00 PM GMT

Forex traders benefit from overlapping sessions, such as London-New York (1:00 PM – 5:00 PM GMT), where liquidity and volatility are highest.

Trading sessions impact market liquidity, volatility, and execution, leading to challenges:

  • Low Liquidity in Off-Hours: Trading outside peak hours can result in wider bid-ask spreads and slippage.
  • Volatility Differences: Some sessions experience higher price swings due to major economic events.
  • Market Gaps: Weekend or overnight gaps can cause sudden price movements when markets reopen.
  • Session-Specific Strategies: Traders must adapt strategies to session characteristics (e.g., high momentum in the New York session vs. slow movement in the Sydney session).

Step-by-Step Guide to Navigating Trading Sessions

  1. Know the Market Hours for Your Asset
    • Check official exchange times for stocks, forex, and commodities.
    • Be aware of time zone differences and Daylight Saving Time (DST) adjustments.
  2. Trade During High-Liquidity Sessions
    • Forex traders should focus on overlapping sessions (e.g., London-New York).
    • Stock traders should enter trades during the first and last hours of the session when liquidity is highest.
  3. Adjust Strategies for Volatility Levels
    • Use trend-following strategies in volatile sessions (New York, London).
    • Apply range-bound strategies in low-volatility sessions (Asian session).
  4. Monitor Economic Events and Market News
    • Major news releases (e.g., interest rate decisions, GDP reports) often impact session volatility.
    • Plan trades around key events to avoid unexpected price spikes.
  5. Utilize Stop-Loss and Limit Orders
    • Protect positions from sharp movements, especially when holding trades overnight.
    • Use limit orders to avoid slippage in low-liquidity sessions.

Practical and Actionable Advice

  • Trade During Session Overlaps: Liquidity is highest when major sessions overlap (e.g., London-New York).
  • Avoid Low-Liquidity Periods: If trading stocks or forex, avoid trading during session transitions when spreads widen.
  • Plan Around Market Closures: Markets closing for weekends or holidays can cause price gaps.
  • Use Session-Specific Strategies: Scalping works well in high-volatility sessions, while swing trading may suit low-volatility periods.
  • Monitor Futures and After-Hours Trading: Futures and extended hours trading can indicate how markets may open the next day.

FAQs

What is a trading session?

A trading session is a defined period when financial markets are open for trading activities.

What are the major forex trading sessions?

The four main sessions are Sydney, Tokyo, London, and New York.

Which trading session is the most volatile?

The London-New York overlap (1:00 PM – 5:00 PM GMT) is the most volatile due to high liquidity.

Do stock markets have after-hours trading?

Yes, some stock exchanges offer pre-market and after-hours trading, but with lower liquidity.

How do trading sessions affect market volatility?

Sessions with higher participation (e.g., London and New York) tend to be more volatile.

Can I trade during weekends?

Most markets close on weekends, but crypto markets remain open 24/7.

How does Daylight Saving Time (DST) impact trading sessions?

Market hours shift by an hour in regions that observe DST, affecting global trading schedules.

What session is best for scalping?

Scalping is most effective during high-liquidity periods like the New York open and London-New York overlap.

Why do price gaps occur between sessions?

Gaps happen due to overnight news, earnings releases, or economic events that impact prices before markets open.

How do I choose the best trading session?

It depends on your strategy—scalpers prefer volatile sessions, while swing traders may benefit from less volatile periods.

Disclaimer: The content on this site is for informational and educational purposes only and does not constitute financial, investment, or legal advice. We disclaim all financial liability for reliance on this content. By using this site, you agree to these terms; if not, do not use it. Sach Capital Limited, trading as Traders MBA, is registered in England and Wales (No. 08869885). Trading CFDs is high-risk; 74%-89% of retail accounts lose money.