Just What is the Size of the Forex Market?
When you look at it like in the graph above (from our best forex forum friends, BabyPips), the size of the forex market is simply immense. They certainly don’t call it the most liquid market in the world for nothing!
Yes that’s right, the forex market is the biggest and most liquid market in the world. Bigger than the New York Stock Exchange, bigger than the Tokyo Stock Exchange, bigger than the London Stock Exchange. Heck it’s even bigger than those three global stock exchanges combined… and then some!
Unlike the stock market which is traded on a central exchange, the forex market is completely decentralised. This means that there is no central building like the NYSE building on Wall Street in New York City as it’s an electronic, over the counter market.
According to the Bank for International Settlements, forex trading increased to an average of over $5 TRILLION a day. An absolutely phenomenal figure. The forex market’s largest participants are banks spanning Asia, Europe and North America. Combined with institutional investors, corporations, governments and finally speculators like you known as retail forex traders.
It is the deep liquidity pools within the forex market that is so advantageous to traders, as it allows them to enter and exit the market in the short term and trade on clean setups.
As we spoke about above, the graph at the top of the page highlights just how big the $5 trillon a day forex market is. This figure monumentally dwarfing equities and even futures markets with this hilarious quote becoming iconic in the Forex Twitter community.
“It would take thirty days of trading on the New York stock exchange to equal one day of Forex trading!”
Traders from other markets are attracted to the Forex because of this extremely high levels of liquidity. Liquidity is important as it allows traders to get in and out of a position at with ease 24 hours a day 5 ½ days a week. It allows large trading volumes to enter and exit the market without the large fluctuations in price that would happen in less liquid market. This means that if you will never get in a position because of the lack of a buyer. This liquidity can vary from one trading session to another and one currency pair to another as well.
As the most traded currency, the US dollar makes up 85% of Forex trading volume. At nearly 40% of trading volume, the euro is ahead of the third place Japanese yen that takes almost 20%. With volume concentrated mainly in the US Dollar, Euro and Yen, Forex traders can focus their attention on just a handful of major pairs. In addition, the greater liquidity found in the Forex market is conducive to long, well-defined trends that respond well to technical analysis and charting methods.
In summary, the size of the forex market makes it the ideal market for traders coming from all backgrounds. The liquidity makes it easy for traders to analyse and take positions.
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