Forex: The Most Traded Market in the World

Filed under: Learn Forex Trading |

The foreign exchange market is the most traded market in the world. It’s bigger than the various stock markets combined, and by some distance. The average daily turnover in the forex market is continuously growing (it has more than doubled since 2004!), and is currently around an incredible $4 trillion! Yes – that is “trillion”. What is interesting is that trading in the UK accounts for 36.7% of this total, making the UK an important global financial hub. The next most important are the USA, which accounts for 17.9% of the total, and Japan, which accounts for 6.2% of the total. The most important trading centers are in London, New York, Tokyo, Hong Kong, and Singapore.

 

The interbank market, which is the top level of the foreign exchange market where banks exchange different currencies, accounts for 53% of all transactions. Some banks trade billions of dollars every day. As a result, these banks are able to demand much lower spreads than you or I could get via an online broker. This makes it much harder for the independent trader to make a profit, as the spreads do a good job of eating up any trading edge that you might have. However, with the rise of online brokers and the ease of trading forex nowadays, individual traders are now making up a much larger share of total trading.

 

The most traded currencies are the US dollar, followed by the Euro, the Japanese Yen, and the British pound.  The four most traded currencies are the EUR/USD, USD/GBP, USD/CHF, and the USD/JPY. These are the pairs that have the most liquidity. However, these are a whole host of other pairs that have high liquidity and can be traded. Even if you are not interested in fundamental analysis, I think it is important to have at least a fundamental understanding of the forex market if you are going to trade on it. I hope this short article has made you curious enough to study a little bit more.

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