How Do Different Trading Sessions Affect The Risk Tone?

For the most part you should focus on the underlying equities that are open while we are trading, but equity futures work too.
Share on facebook
Share on google
Share on twitter
Share on linkedin
Follow me
Latest posts by Arno Venter (see all)

Trading Session Risk Tone

Just a quick question here from Abu asking, “Does different trading sessions affect the risk tone?” So, first of all, Abu, thanks for the question. The short answer is yes, different sessions can affect the risk tone.

The current open exchange data is usually the equity data that we use for determining the equity performance at that time. For example, when we are trading during the Asia-Pac session, we will look at equities that are trading during that particular trading session, for example, equities that might be trading with the Tokyo and Australian Stock Exchanges.


 How To Manage A Trade If The Risk Tone Shifts?

Does Risk Tone Affect Emerging Market Currencies?

How To Trade When Risk Tone Is Unclear?

How To Identify When The Risk Tone Has Changed?

Then if we get to our screens, for example, before the London and Frankfurt Stock Exchanges have opened, that means that we won’t have any European equities open at that time, then we can basically look at the Asia-Pac equity, see what they have been doing, to get a feel of the overall equity performance and the overall risk tone based on the equities. Then as London and Frankfurt opens up, we can then turn our attention to the European equities to gauge the overall market sentiment based on the open exchange.

Then, of course, once New York opens up later in the day, we can look at both the European and New York equities for those couple of hours that they simultaneously are open for the day, which is normally about four hours of the day. Then after London closes down, we can just basically focus on New York equities alone.

Now if there is a strong risk catalyst, risk tone catalyst in a particular trading day, it can mean that all three sessions might be showing risk on a risk off, or we might have seen a risk on during the Asia-Pac session, for example, but then something happens in the meantime that suddenly changes the mood to more risk off, then we might see a green board for Asia-Pac, but we might see a red board for European equities.

So in that sense we always want to be looking at the current open exchange for the freshest sentiments gauge, if that makes sense. Now there is a little bit of a shortcut that we can use, which is using equity futures, so if I just open up the equity futures here. So they don’t only trade during the actual exchange hours, so they don’t only trade during the London session or the New York Stock Exchange or Tokyo. They basically trade fairly much similar hours to that of a foreign exchange.

So that is great because it basically gives you a sense of how the overall market, both Asia-Pac as well as European as well as New York equities or equity markets are viewing the overall risk tone throughout a session or throughout a trading day. So to simplify it, if we want to look for a total risk on in the market, we want to see equity markets, whether that is the actual exchange open at that time or the futures market as a whole, we want to see all of them either green across the board and if it’s risk off, we want to see all of them red across the board.

Now what makes the futures also helpful is, let’s say there is a very continent-specific element that might be causing certain equities to go high or lower. So let’s say there’s a crisis, for example, in Europe and it’s something that only affects European equities.

We might see all the European equities red across the board. Where we might see New York equities or rather America’s equities and Asia-Pac equities, we might see them all green across the board while Europe might be trading red.

So in that sense, the futures market is a great gauge because it gives us an overall sense of what the entire market is thinking in terms of the mood of the market or the risk tone of the market.

So I hope that helps you out there. If there’s any other questions, as usual, just let us know.



Learn to trade confidently and independently. Trade to the live heartbeat of the Forex Market in realtime.  Never miss a beat!

0 0 vote
Article Rating




A Financial Source subscription is just $97 per month. Cancel in two clicks.
*Limited offer. Normally $247.
Notify of
Inline Feedbacks
View all comments