The Forex (foreign exchange) market is the world’s largest and most liquid financial market, where currencies are traded 24 hours a day, five days a week. Understanding how it works—especially trading sessions, currency pairs, and liquidity—is essential for anyone looking to trade confidently and effectively.
What Is the Forex Market?
The Forex market is a decentralized global marketplace where currencies are exchanged. Unlike stock markets, Forex has no central exchange. Trades occur electronically over-the-counter (OTC) through banks, brokers, financial institutions, and individual traders.
Key facts:
- Operates 24/5
- Daily trading volume exceeds $6 trillion
- Accessible to traders worldwide
Forex Trading Sessions Explained
The Forex market follows the global business day, divided into four major trading sessions based on financial hubs around the world.
Sydney Session
- Opens: 10:00 PM GMT
- Characteristics: Low volatility, ideal for planning trades
Tokyo Session
- Opens: 12:00 AM GMT
- Popular Pairs: JPY pairs
- Market Behavior: Steady movements, moderate liquidity
London Session
- Opens: 8:00 AM GMT
- Most Active Session
- High liquidity and volatility
New York Session
- Opens: 1:00 PM GMT
- Strong USD movements
- Overlaps with London = highest volatility
Best Trading Time:
When London and New York sessions overlap, the market experiences maximum liquidity and tighter spreads.
Understanding Currency Pairs
Forex trading always involves two currencies, known as a currency pair.
Structure of a Currency Pair
Example: EUR/USD
- Base Currency: EUR
- Quote Currency: USD
- Price shows how much quote currency is needed to buy 1 unit of base currency.
Types of Currency Pairs
1. Major Pairs
- Include USD
- Examples: EUR/USD, GBP/USD, USD/JPY
- ✔ High liquidity, low spreads
2. Minor Pairs
- No USD involved
- Examples: EUR/GBP, AUD/JPY
- ✔ Moderate liquidity
3. Exotic Pairs
- One major + one emerging currency
- Examples: USD/TRY, EUR/PKR
- Higher spreads, higher risk
What Is Liquidity in Forex?
Liquidity refers to how easily a currency pair can be bought or sold without affecting its price.
Why Liquidity Matters
- ✔ Faster trade execution
- ✔ Lower spreads
- ✔ Reduced slippage
- ✔ More predictable price movement
What Affects Liquidity?
- Trading session overlaps
- Economic news releases
- Market participants (banks, institutions)
- Currency pair popularity
Highly liquid pairs: EUR/USD, USD/JPY
Low liquidity pairs: Exotic currencies
How Sessions, Pairs & Liquidity Work Together
- Major sessions = higher liquidity
- Major pairs trade best during overlapping sessions
- High liquidity = better trading conditions
- Low liquidity = higher risk & volatility
Successful traders align:
✔ the right session
✔ the right currency pair
✔ with high liquidity periods
