What is Forex Volume: How to Use it to Your Advantage

If you didn’t know, the forex market has an average turnover of $5.1 trillion daily! In other words, that’s the forex volume! 

The forex market is large enough for every trader. 

Forex allows swing traders, scalping and position trading…even long-term trading. 

You can enter markets at any time, with tight spreads and good leverage.

Let’s explain what is forex volume and how to use it to your advantage…

The forex players

To start, interestingly, the bulk of trades are made with major currencies. And only a few global powerhouses account for most of these trades. 

Forex traders are separated into two categories:

  • Institutional traders: Major banks, governments, hedge funds and portfolio managers.
  • Retail traders: Individual traders (like you and me) and prop traders (who work at proprietary trading firms).

Institutional trading makes up 90% of the forex market ― the ‘smart’ money. Only 10% of trades are done by individual and prop shop traders (i.e. forex traders who trade capital for other people).

Take a second to dwell on these figures.  

It’s clear that markets move with ‘big money’ or ‘smart money’, as it’s called. 

Even large prop shop traders can’t move markets. That’s because there’s too much forex volume. 

The moral of the story: The trend is dictated by the ‘smart money’, who have enough ‘fire power’ to move the forex market. So, as individual traders, we shouldn’t be fighting the trend. The price will move backward and forward around the trend in motion. If you see the price about to break out, don’t forget about the broader trend. The price could easily revert to a major supply or demand level in the trend. 

Forex volume and liquidity

The forex market trades 24 hours a day, five day a week.

Traders often confuse forex volume and liquidity. Forex volume is the total amount of capital traded in a market. Lots of trades around the clock means a massive amount of volume in the forex market. Therefore, trades have ‘high liquidity’ with steady money flows to buy and sell currency. Liquidity is the ability to move your money in and out of the market. High liquidity allows you to enter or exit your trade quickly.

That’s a positive of trading forex! 

In the stock market, if you’re trading penny stocks, you might not be able to buy or sell for days or weeks. In forex, you don’t need to wait since there’s so much volume. Retail traders can trade any amount they choose as well. The most active pairs are the USD/JPY and the EUR/USD, making up 41% of all trades. 

The US dollar makes up 85% of all volume. 

What are the largest forex trading countries?

The United Kingdom, United States and Singapore are the top three in terms of trading forex volume. Because high forex volumes are traded in these countries, this is why markets follow their trading sessions. 

You might have heard about the Asian, London and New York sessions.

Most trading happens when two of them have overlapping trading sessions. For example, when the London and Asian sessions are trading simultaneously, a big proportion of volume for the day would be processed in the first hour. 

Most active currencies by forex volume

The most traded currencies are:

  • US dollar
  • Euro
  • Japanese yen
  • British pound
  • Australian dollar
  • Swiss franc
  • Canadian dollar
  • Renminbi (Chinese yuan)
  • Swedish krona

Your ‘Start With Forex’ takeaway: What is Forex Volume

The forex is the largest market in the world. 

The majority of trades are done by only a few players on a few major currencies. When I first start trading forex, I would sit at my screen all the time. 

I can’t get back that lost time.  

Don’t be at your desk for every hour of every waking day, trading. 

Live a life. 

Forex isn’t a life ― it’s a way to make money. 

Pick you battles. 

Your ‘Start With Forex’ top tip: Choose the most active sessions and currencies. You don’t need to trade every currency. Get familiar with one or two major currencies and look for repeating patterns, trade breaking news, or wait for setups to come to you. Oh, and as we said in the last lesson, trade with the trend…or the ‘smart money’!

It’s one thing trading forex. But it’s not the only way to make money. I come from an equities analysis background and love trading stocks to this very day. I’ve made a large fortune trading stocks. So the big question I’m asked is, whether you should trade forex or stocks? If you’re ready to discover what’s the difference between forex and stocks and which is better, click here.  

To your trading success,
Start With Forex 

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Quiz

Lesson Four: An Overview and Market Size of the of the Forex Trading Market

 

The two categories forex traders are separated into are:

Correct! Wrong!

Forex market trading hours are:

Correct! Wrong!

This currency makes up 85% of all trading volume:

Correct! Wrong!

The ability to move your money in and out of the market is called:

Correct! Wrong!

The top three countries in terms of trading volume are:

Correct! Wrong!