Forex or foreign exchange is a decentralized market where currencies are traded globally. The foreign exchange market is the largest and most liquid market in the world, with an average daily trading volume of around $5.3 trillion. In the forex market, traders use various tools and indicators to make informed decisions about buying and selling currencies. One of the most important tools is volume. In this article, we will explain what forex volume is and how to read it.
What is Forex Volume?
Forex volume is the total number of contracts or lots traded within a specified time frame. The volume is calculated by adding up the number of contracts or lots bought and sold in a particular currency pair. For example, if a trader buys 100 lots of EUR/USD and sells 50 lots of EUR/USD, the total volume for EUR/USD would be 150 lots.
Volume is an important indicator in the forex market as it reflects the level of activity and liquidity in the market. High volume indicates that there are a large number of buyers and sellers in the market, which means that the market is highly liquid. Conversely, low volume indicates that there are fewer buyers and sellers in the market, which means that the market is less liquid.
How to Read Forex Volume?
Forex volume can be read in several ways, including:
1. Volume Indicator: A volume indicator is a technical tool that displays the volume of trades in a currency pair. The volume indicator is usually displayed at the bottom of the price chart and shows bars or lines that represent the volume of trades. The higher the volume, the taller the bar or line. Traders can use the volume indicator to identify trends or spot potential reversals.
2. Candlestick Charts: Candlestick charts are a popular way of displaying forex price data. Candlesticks show the opening, closing, high, and low prices for a given time frame. The size of each candlestick represents the range between the opening and closing prices, while the color of the candlestick indicates whether the price went up (green) or down (red) during that time frame. If the candlestick is green, it means that the closing price was higher than the opening price, and there was buying pressure. Conversely, if the candlestick is red, it means that the closing price was lower than the opening price, and there was selling pressure. Traders can use candlestick charts in combination with volume indicators to spot potential trading opportunities.
3. Tick Volume: Tick volume represents the number of price changes that occur during a given time frame. In the forex market, tick volume is used to measure the number of times the price changes within a particular currency pair. Traders can use tick volume to identify potential trading opportunities or to confirm trends.
Forex volume is an essential indicator that traders use to make informed decisions about buying and selling currencies. High volume indicates that the market is highly liquid, while low volume indicates that the market is less liquid. Traders can read forex volume in several ways, including volume indicators, candlestick charts, and tick volume. By combining these tools, traders can identify potential trading opportunities and make informed decisions about their trades.