Breaking Down the Numbers: A Look at the Forex Market’s Total Worth
The foreign exchange market, also known as forex, is the largest and most liquid financial market in the world. With trillions of dollars traded daily, understanding the total worth of the forex market is crucial for both traders and investors. In this article, we will break down the numbers and take a closer look at the forex market’s total worth.
The forex market operates 24 hours a day, five days a week, and has no physical location. It is a decentralized market where participants from all over the world trade currencies. The main players in the forex market include commercial banks, central banks, multinational corporations, hedge funds, and retail traders.
To determine the total worth of the forex market, we need to consider the average daily trading volume. According to the Bank for International Settlements (BIS), the forex market’s average daily turnover was $6.6 trillion in 2019. This figure represents the total value of all currencies traded on that specific day.
Breaking down the average daily turnover further, we can analyze the different trading sessions and their contribution to the total worth of the forex market. The forex market is divided into three major trading sessions: the Asian session, the European session, and the American session.
The Asian session, also known as the Tokyo session, starts at 7:00 PM UTC and ends at 4:00 AM UTC. It is the first major session to open, and it contributes around 21% to the total daily trading volume. The Asian session is dominated by Japan, China, and Australia, with their respective currencies, the yen, yuan, and the Australian dollar, being the most actively traded.
The European session, also known as the London session, is the most active session and contributes around 42% to the total daily trading volume. It starts at 8:00 AM UTC and ends at 5:00 PM UTC. The European session includes major financial centers such as London, Frankfurt, and Paris. The euro, pound sterling, and Swiss franc are among the most traded currencies during this session.
The American session, also known as the New York session, starts at 1:00 PM UTC and ends at 10:00 PM UTC. It contributes around 37% to the total daily trading volume. The American session overlaps with the European session for a few hours, resulting in increased trading activity. The US dollar is the most traded currency during this session, along with the Canadian dollar and the Mexican peso.
Apart from the three major trading sessions, there is also a period of overlap between the Asian and European sessions, known as the Asian-European overlap. This overlap occurs between 7:00 AM UTC and 8:00 AM UTC and contributes around 15% to the total daily trading volume. During this period, traders from both sessions are active, leading to increased volatility and trading opportunities.
In addition to the average daily trading volume, another important factor to consider when determining the forex market’s total worth is the number of market participants. The forex market is open to anyone with an internet connection and a trading account. Retail traders, who trade smaller amounts compared to institutional players, contribute a significant portion to the total trading volume.
In conclusion, the forex market’s total worth can be determined by analyzing the average daily trading volume and the number of market participants. With an average daily turnover of $6.6 trillion, the forex market is the largest financial market in the world. Understanding the total worth of the forex market is essential for traders and investors, as it provides insights into the market’s liquidity and overall size.
