North American Trading Session
This lesson will cover the following
- Basic features of trading during the North American session
- Advantages and disadvantages
As weve already explained in the previous articles, the North American trading session, also referred to as the New York trading session, begins at 12:00 – 1:00 PM GMT depending on the season and fades out by 9:00 – 10:00 PM GMT respectively. In terms of U.S. time, this is just a simple work day time – 8.00 – 17.00 EDT/EST.
Unlike the one hour overlap between the first two sessions for the day, when American trading hours begin, the European session is only halfway through. This leaves the European and US sessions sharing 4 hours, during which you can see a great increase in liquidity and volatility provided by both London and New York market participants.
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The North American trading session is ranked second in trading volume with around 17-18% of overall turnover. It is dominated by activity from the U.S., coupled with contributions from Canada, Mexico and several countries from South America. As one would expect, the main participant in all trades is the U.S. dollar, which takes part in 80-85% of all transactions during American trading hours. This is no surprise given the fact that the dollar stood in one side of 87% of all trades on the Forex market as of April 2013. This implies that traders must pay extra attention to all currency pairs which include the greenback.
Despite the dominant role of the U.S. dollar, almost every pair can be traded during the American session, especially during the 4-hour concurrence with the European. Not only is there heightened activity due to the increased number of traders from both sides of the Atlantic, but also U.S. banks begin to exchange early in the morning billions of dollars between themselves and with their European counterparts, such as Deutsche Bank, the biggest liquidity provider worldwide.
Another aspect to take into consideration is the release time of keenly awaited economic data from the U.S., causing rapid movement in both directions of the dollar crosses. Most of the data which introduce high volatility and volume are published in the morning U.S. hours, or 1:30-3:00 PM GMT, coinciding with the European session overlap. Another event of utmost importance which echoes throughout the global financial markets are the Federal Open Market Committee (FOMC) meetings, usually held at around 6:00 PM GMT, while the meeting protocols are released three weeks later roughly at the same time.
Also worth to remember is that while general market activity generally follows the trend of the major crosses, pairs comprised by currencies belonging to the underlying sessions see the strongest volatility during these sessions. For example, the USD/CAD pair typically trades most actively during U.S. trading hours, while a cross such as the EUR/JPY will experience the highest volatility during the Asian-European sessions overlap.
Another fact worth to notice is that Friday evenings are usually a very calm period since the Asian and European markets have already closed for the weekend. This means that the remaining U.S. market participants will see low volume and volatility, which makes it harder to position yourself and profit, especially for beginner traders. At the same time, you can expect sudden price reversals despite the lack of high activity and events, as some traders take profits, while others just close positions to avoid additional risk exposure to news over the weekend.