Trading Forex During the Tokyo Session

For traders residing in the United States (often humorously referred to as "Murica"), the forex trading day kicks off on Sunday night at 5:00 pm EST (10:00 pm GMT). However, it's important to note that significant liquidity doesn't truly materialize until a few hours later when the Tokyo session opens.

The commencement of the Tokyo session at 12:00 am GMT marks the initiation of currency trading activity in the Asian region. It's worth mentioning that the Tokyo session is sometimes interchangeably known as the Asian session.

A notable point to remember is that Japan holds the position of being the world's third-largest forex trading center. This isn't particularly surprising given that the Japanese yen ranks as the third most traded currency, contributing to 16.8% of all forex transactions.

In aggregate, approximately 20% of the total forex trading volume occurs during the Asian session. However, this volume isn't solely attributed to Tokyo; other major financial centers in Asia, including Singapore and Hong Kong, play substantial roles.

Interestingly, in recent times, Singapore and Hong Kong have collectively surpassed Tokyo in terms of forex trading volume. Both Singapore and Hong Kong account for 7.6% of the overall volume each, while Japan contributes 4.5%. This may prompt us to consider whether "Asian session" is a more fitting descriptor than the "Tokyo session."

Below, you'll find a table displaying the pip ranges for major currency pairs during the Asian session.

These pip values have been determined by averaging historical data. Please keep in mind that they are not fixed values and may fluctuate depending on factors such as liquidity and prevailing market conditions.

Additionally, the session range for EUR/CHF has not been included because the Swiss franc has been pegged to the euro at 1.2000 during that period. To obtain the current average pip range for a specific currency pair during the Tokyo session, you can easily utilize our MarketMilk™ app.

For example, here is the average pip range for EUR/USD:

Here are some important characteristics to be aware of regarding the Tokyo session:

• Global Activity: Forex activity during the Tokyo session extends beyond Japanese borders. A significant volume of forex transactions occurs in other financial hubs like Hong Kong, Singapore, and Sydney.

• Key Participants: The primary market participants during the Tokyo session are commercial entities (particularly exporters) and central banks. It's essential to note that Japan's economy heavily relies on exports, and given China's substantial role in global trade, a substantial number of transactions occur daily.

• Liquidity Variability: Liquidity in the Tokyo session can vary considerably. There will be instances where trading during this period resembles waiting for a fish to bite—a patient endeavor.

• Currency Pair Behavior: Expect to observe more pronounced movements in currency pairs from the Asia Pacific region, such as AUD/USD and NZD/USD, compared to non-Asia Pacific pairs like GBP/USD.

• Trading Opportunities: During periods of thin liquidity, many pairs may adhere to a specific range. This presents opportunities for short-term day trades or potential breakout trades later in the day.

• Timing of Activity: Most trading activity in the Tokyo session occurs early on when a significant amount of economic data is released.

• Impact on the Day: Moves made during the Tokyo session can set the tone for the rest of the trading day. Traders in subsequent sessions often look to the Tokyo session's developments to formulate and assess their strategies.

• Post-New York Session: Typically, following significant movements in the preceding New York session, you may witness consolidation during the Tokyo session.

Selecting Currency Pairs for Trading:

Given that the Tokyo session coincides with the release of news from Australia, New Zealand, and Japan, it offers an excellent opportunity to engage in trading news events.

Furthermore, yen pairs may exhibit more significant movements during this time since many yen transactions occur due to Japanese companies conducting their business activities.

It's crucial to be aware that China, as an economic powerhouse, has a notable impact. Consequently, news releases from China often lead to heightened volatility in the market.

Considering that both Australia and Japan heavily depend on Chinese demand, it's possible to observe greater price fluctuations in currency pairs involving the Australian dollar (AUD) and the Japanese yen (JPY) when Chinese economic data is released.

Now, let's move on to exploring how you can effectively trade during the London session.