Should You Trade in the Foreign Exchange Session Overlap?

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This article looks at whether or not you should be trading in the foreign exchange session overlap.

Foreign Exchange Sessions Overlaps

There are many factors that make the foreign exchange unique.  One of these factors is the 24 hour trading day that you are able to find during the week.   There are no other markets that offer you this trading time.  However, when you look at the trading day you should consider the market sessions that make up this trading time.  There are 4 sessions that you should know about and three overlaps that you can trade in.  It is important that you understand what is different about the overlap times and whether or not you should be trading during these times.

The Foreign Exchange Overlaps

There are three market session overlaps on the foreign exchange.  These overlaps come with the London and New York sessions, the Tokyo and Sydney sessions and the Tokyo and London sessions.  The overlap that most traders will look at using is the London and New York overlaps.  This is the longest and the best overlap to trade on because it covers the largest markets and lasts of 4 hours.

The Benefits of the Overlaps

There are a number of benefits that you will find when you look at the overlaps on the market.  The first benefit is that the market will have increased liquidity.  There will also be an increase in the volatility of the market.  This benefit comes from the number of traders that will be using the market at these times.  When the number of traders increases the volume of trades will also increase.

Another benefit that you could find during the session overlaps relates to the trading that you can do and the service your broker offers.  During this time you may find that the spreads you are getting from the broker tighten.  This is due to the movement of the market and the higher liquidity.  The order execution will also be better at this time.  Of course, this benefit is not something that you are sure to get and you need to consider this.

Should You Trade During the Overlap?

While the overlap is considered to be the best time to trade for a lot of people there are others traders who should actually avoid the market at this time.  The long-term traders are the ones that should be avoiding the market when there is an overlap.  The volatility of the market will cause a number of problems for long-term traders.  The primary problem that they will face is a bad entry point for their trade.  The fluctuations in the market will cause you to get a bad entry point and this will affect the profits that you make on the market.

If you are a short-term trader then you can look at trading during this time.  The movements that you see on the market during the overlap will generally enhance the trading that short-term traders can complete.  Of course, you have to also consider your risk capacity when you trade.  There are many traders who find that the overlaps are too volatile and this will lead to increased risks in trading.  These risks are not something that all traders are prepared for.




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