The trading session in Asia is one of the world’s three largest markets for forex, with the other two being the European (running on Frankfurt, Milan, London, etc., exchanges) and North American (NY, Chicago) sessions. The three markets are defined by differences in geographical, time, and economic components.
The three markets are better known by their economic/financial centers, with the Asian trading session commonly referred to as the Sydney/Tokyo session. In contrast, the European and North American sessions are widely known as London and New York trading sessions.
One of the definitions of these markets is time. The Asian session opens with the Sydney session at 2200 GMT, which is followed by the Tokyo session at 0000 GMT. Notably, there is an overlap of 1-hour between the London and Tokyo sessions. This happens as the London market opens one hour before the closure of the Tokyo session.
Asian session and implications of trading it
In a strict sense of the word, the Asian trading session comprises the Tokyo and Sydney markets as well as Singapore and Hong Kong, which are significantly larger.
The Tokyo market is comparatively less volatile and less liquid than the London and New York sessions. Nonetheless, due to Tokyo’s status as the world’s third-largest financial capital, the session is quite popular. In addition, the Japanese yen is the third most transacted currency globally, with involvement in about 17 percent of forex trade.
Therefore, trading in the Asian sessions may not be the most discussed topic globally, but it has great implications on the global economy and forex rates in particular.
What are the key aspects of the Asian trading session?
- This market provides traders with relatively low liquidity compared to New York and London markets. As a result, the movement of most currency pairs in this market is usually within small margins.
- Due to Japan’s status as the world’s third-largest economy, and considering that Japan largely relies on exports, the largest participants in the session are the companies and banks of Japan.
- Tokyo is in the East-most part of the world, meaning that its session starts ahead of the rest. This is significant because it usually sets the pace for activities in other markets and even influences trade in those markets.
- The margin of movement of regional currencies against the other major global currencies is usually larger. For example, US /JPY is usually more active than EUR/USD.
- The Asian session typically has a calming and stabilizing effect on other markets because of its low volatility in forex. Whenever there are significant changes in this session, it strongly affects New York and London sessions.
- Due to the economic data being released in the early hours of the Asian trading session, the early morning hours are usually the most vibrant.
Apart from the economic data released in Japan, Asian markets are also impacted significantly by data from other large economies in the region, such as China, Australia, and New Zealand.
China’s data is especially impactful, considering that it is the world’s second-largest economy. In addition, the large regional trade volumes, such as between Australia and China, have a great impact on the market.
While the Asian markets are not nearly as volatile as the European and North American markets, opportunities often present themselves. For example, sessions following the release of economic data or central bank speeches are usually quite volatile.
Considering the small windows of opportunities to trade volatility in the Asian market, you should consider using a local brokerage firm to help you execute your orders. This will significantly reduce the chances of committing errors or making late calls. In addition, such an arrangement ensures that your trades are executed by persons who have a good understanding of the market.
Trading the Asian session: Strategies to benefit an FX trader
1. Select currency pairs with local currencies
Asian sessions are usually low on volatility. This means that your profit margins are technically reduced in this market. However, the biggest margins involve currency pairs with local currencies.
These are not only more volatile but also enjoy high liquidity. For example, you stand a better chance of optimizing your profit with AUD/JPY than with GBP/USD. Due to the large sizes of Japan’s and Australia’s economies, the most active currency pair in the session is usually AUD/JPY. Therefore, if you are in the forex market, ensure that you go “local.”
2. Time your entry
The Asian session is peculiar for releasing central bank speeches and economic statistics at the start of the sessions. This makes the early morning hours the opportune time to maximize your gains. This is because such news stimulates greater market activity in the morning than in later sessions.
Also, avoid going in before 0000 GMT, or else you will have to contend with the low activity from Australian traders and miss out on the momentum that comes in with the entry of American traders.
3. Wait for the breakout
With its typical low volatility, the Asian session has the advantage of having more reliable and longer-lasting breakouts. After the volatility of early hours, the market usually tends to stay in range for some time.
However, if you are patient and you have identified the key levels of support and resistance, you can put your money on a breakout that will probably last longer than the typical breakout in the London and New York markets. So study the trend and wait for the breakout.
4. Combine the impact of the American market
The Asian session opens a few hours after the closure of the US market. Due to the economic interdependence between the United States and the rest of the world, the Asian sessions tend to pick cues from the American market.
Historically, when the US market closes on a bearish tempo, Asian markets open on a bearish footing. The same applies to a bullish closure to the US markets. Going by this logic, the best time to enter the market is 05:00 GMT, following the closure of the US markets.
Bottom line
The Asian trading session is a great market to carry out your trade and diversify your portfolio. However, you need to know its time difference and its interrelationship with the London market and the New York session. Importantly, understand the possible downsides and consider the possibility of using a broker from Japan.
