How Much is the Forex Market Worth?
If you’re wondering how much is the forex market worth, the short answer is that it’s worth $2.409 quadrillion.
That seems like a lot. And that’s because it is!
When you’re first learning about the forex market, one of the more difficult things to wrap your head around is its size. To put it into perspective, global GDP is currently US$87 trillion.
So the forex market is significantly larger than the world economy.
Let’s go into more detail…
How much is the forex market worth by daily volume?
It’s estimated that the daily trading volume of the forex market is $6.6 trillion.
That makes it significantly larger than the stock market. The world stock market trading volume is roughly $200 billion per day.
The size of the forex market dwarfs that of the stock market.
The forex market has also seen a 40% increase in the past decade.
How much is the forex market worth historically?
In 2010, the forex market almost hit $4 trillion per day. This marked nine years of continuous growth.
In 2013, that number reached $5.3 trillion.
Around this point, the forex market stopped growing and actually dropped to $5.1 trillion in 2016. The drop was attributed to a number of factors, such as the Swiss currency crash in 2015. The banking industry’s new regulatory environment was also a factor.
Between 2016 and 2019, the value of the forex market increased by 30%. That represented the fastest rate of growth in 19 years!
The increase was primarily caused by the growth of foreign exchange swaps. FX swaps are typically used for liquidity management and currency hedging. If you don’t know what this is, don’t worry. Let the investment banks, corporations and central banks worry about that stuff.
That said, FX swaps accounted for 49% of all trades in the forex market in 2019. It reached a record $3.2 trillion. Yes, this was in 2019. But it’s pretty much the same today. It also shows where the crux of the volume is…and what really drives the forex market today.
On the flip side, another potential cause for the rise in trading volume is the increasingly interconnected nature of the forex market. E-trading now accounts for 56% of all trading volume in the forex market.
Where is the money?
The forex market is decentralised, if you didn’t know.
For example, unlike the New York Stock Exchange, there is no central location where all trades take place. Forex trades are made directly between two parties instead. And these trades are facilitated by a network of banks, rather than a single exchange.
Who trades forex?
Thanks to its decentralised nature, just about anyone can enter the forex market. The forex market is a global marketplace. That said, 79% of all transactions occur in just five countries.
The United Kingdom is the largest forex market at 43.1%. It’s followed by the United States (16.5%), Singapore (7.6%), Hong Kong (7.6%) and Japan (4.5%).
Provided it’s legal in your country, the entry requirements are an internet connection, a brokerage account and as little as $100.
Let’s dig deeper…
Commercial and investment banks
The biggest players in the forex market are commercial and investment banks.
Trades are typically counted in parcels, with a single parcel worth between $5 million and $10 million.
These banks facilitate trades for clients, but most also have their own trading desk.
Reserve banks – also known as central banks – are also big players in the forex market. They are institutions that manage the currency and monetary policies of individual countries.
One of their key responsibilities is managing the price of their native currency. Their polices also have significant effects on the market as a whole.
Portfolio managers and hedge funds
After banks, the largest traders by volume are portfolio managers and hedge funds. They buy large amounts of foreign currency both for speculative purposes and hedging.
If a company is engaged in import and export, it will generally be required to conduct forex transactions in order to pay for goods and services. Many companies also trade currencies as a hedge against future fluctuations.
The retail market is a very small segment of the overall forex market, but it’s also one of the fastest growing. Current estimates put it at approximately 5.5%.
Individual investors try to predict the market using a combination of fundamentals (i.e. rising interest rates) and technical factors (i.e. resistance and support levels) to make profit.
How much is the forex market by instrument?
Remember, forex swaps make up almost half of all trades in the forex market. The breakdown is as follows
- Foreign exchange swaps: $3.2 trillion
- Spot transactions: $2 trillion
- Outright forwards: $1 trillion
- Currency swaps: $108 billion
- Options and other products: $294 billion
Most popular currency pairs
170 different currencies make up the international forex market. The vast majority of transactions, however, are based on seven forex pairs. It’s estimated that seven US dollar currency pairs account for 68% of all transactions.
Most popular currencies
The US dollar is the most popular currency, as you can probably tell. That’s why it’s the world’s reserve currency and seen as a ‘safe haven’ in uncertain times.
In fact, 88% of all transactions include the US dollar.
There’s a number of reasons for this, including:
- The US economy is the largest in the world.
- Most central banks hold their reserves in US dollars.
- The US dollar is the medium by which many cross-border transactions are implemented. For example, oil is priced in US dollars.
Your ‘Start With Forex’ Takeaway: How Much is the Forex Market Worth?
When somebody questions how much is the forex market worth, they are asking the question out of curiosity.
The forex market size is actually an important factor to consider for traders. As a general rule of thumb, the larger a market is, the better it is in terms of trading.
A large market, with significant daily volume, is beneficial for two reasons:
- More trading equals higher liquidity.
- The larger the market, the more difficult it is for a single player to manipulate.
A highly liquid market is good for everyone, even small retail investors. It typically means lower spreads, so you pay less to trade forex. This also refers to how easy it is to buy and sell something without changing its price.
The bottom line: if you’re wondering how much is the forex market worth, the answer is $2.4 quadrillion.
Banks, hedge funds and multinational companies conduct the most trades in the forex market. That said, if you know how to trade forex as a retail trader, you can make some serious money at the end of the day.
If you want to start making money trading, it also helps signing up a forex signal or a forex system provider. That way you can learn how to make the best trades as well.
By the way, if you want to learn how to trade forex like a professional, check out our FREE forex course. Remember, there’s a million ways to make a million bucks in the forex markets. So if you want a head start in forex trading, alongside our free course, check out our approved products page for forex trading signals and systems to help kick start your trading.
To your trading success,
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