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Forex Trading By the Numbers (This Information May Shock You)

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For most current traders Forex markets are the privilege they were born into. As the majority of them are below forty–five years of age, they are too young to remember the Bretton Woods Agreement that was set to rebuild the post-World War II economy. This agreement established a system that ensured that each country adopted a monetary policy pegging their currency to the US dollar which was in turn tied to the price of gold. That became known as the Gold Standard.

Due to insufficient gold supply to cover for dollars in circulation during Nixon’s administration, the dollar has depreciated. The two currencies parted ways leading to the collapse of the said system in 1971. Finding a new model took a while and in 1973. countries were permitted to adopt any suitable exchange arrangement for their currency or let it float freely. Market forces began determining the value of one currency relative to other country’s currencies, thus giving birth to modern forex trading.

Initially, it was exclusively a playground for major players. The only ones who had access to forex trading were leading banks, financial institutions, and governments. The required minimum sum at the time was 40-60 million dollars. It was not until the nineties that a single person such as yourself could cross the threshold of trading with the first deposit not larger than $1,000.  Admittedly, even in 2020 market share of retail forex trading is only 5.5% while multinational corporations and hedge funds have the rest. Still, there seems to be enough for everyone. 

Technological progress played an important role in letting individual traders get into the game. The emergence of the Internet and the spurt of communication accelerated the information exchange. The appearance of forex trading platforms in 1996. facilitated trading currencies in real-time through the Internet and forex brokers. Software development gave us Meta Trader 4 (or MT4) in 2005 and MT5 in 2010 which are still used by 54% of the retail brokers a decade later in spite of numerous other software with user-friendly interfaces. Mobile phones play a big part in today’s trading. 35% of traders search for brokers via smartphones.

A Word or Two about the Market

The Forex market is the only financial market that works round the clock. Major world markets either overlap or as one closes in one part of the world the other one opens across the globe which makes it available 24 hours a day. 

There are four accepted time zones or sessions named after the cities where most forex trading takes place. Those are London, New York, Sydney, and Tokyo. The overlap of London and New York sessions marks the busiest part of the day. During those four hours, the bulk of the average daily $6.6 trillion of trade transpires. In comparison to the New York Stock Exchange, the daily trade volume is 53 times greater. This number is significantly higher than in 2016 when the previous market analysis was carried out by The Bank for International Settlements (BIS). 

The triennial period marks yet another growth of nearly 25%. The entire global forex market was valued at $1.934 quadrillion dollars in 2016. In case you were wondering, the figure is now $2.409 quadrillion. It is twelvefold the futures market and 27 times greater than the equities market.

Currencies and Currency Pairs

There are 170 currencies traded on the global forex market. In terms of how frequently they are exchanged, they could be either exotic or major.  The former is not in the top seven, but may still be noteworthy. Exotic currencies of emerging market economies (India, Mexico, Russia, Pakistan, Saudi Arabia, China, and Brazil) contribute to 24.5% of all market transactions.  

The latter ones are exchanged most frequently. They include the US dollar, the Euro, the Japanese Yen, the British Pound, Australian Dollar, the Canadian Dollar, and the Swiss Franc. In ascending order the last two account for the 5% of forex trading each, AUD for 6.8%, GBP for 12.8%, and JPY holds third place with 16.8%. The Euro is our silver medalist with 32.3% of all daily trades. Finally, lonely at the top is the USD. It is the only currency on either the base side of the quote side of major currency pairs involved in as much as 88.3% of forex deals as stated in the BIS survey of 2019.

According to the currencies involved in trading, there are three types of currency pairs. Majors are dollar-based transactions of major currencies and they make up 67.4% of the Forex market’s daily trade. Minors consist of two of the major currencies, the USD excluded (for instance GBP/EUR and AUD/JPY). Exotic pairs consist of one major currency and one exotic currency (e.g. a currency of a developing economy such as China or Brazil).

The Magnificent Seven

Major currency pairs are the 7 most prominent: EUR/USD, USD/JPY,  GBP/USD, AUD/USD, USD/CAD, USD/CNY, and USD/CHF. In everyday speech, they are often referred to by their nicknames.

The EUR/USD pair or popularly – Fiber, accounted for 24% of trades in 2019. which makes it the No. 1 traded pair on the foreign exchange.

The USD/JPY currency pair or Ninja holds second place despite the decrease from 17.8% of forex trades in 2016 to 13.2% in 2019. 

The firm third place is reserved for the GBP/USD pair nicknamed Cable, which has been stable for three years accounting for 9.6% of 2019 transactions. 

The fourth is the Aussie or the AUD/USD pair, which has been almost fixed since 2016 represented 5.4% of all transactions.

The USD/CAD, also known as the Loonie, is the fifth pair and it made up 4.4% of trades in 2019. 

The relation between the American Dollar and the Chinese Renminbi is the penultimate of the seven majors. This USD/CNY pair rose by 0.3% in three years’ time and it represented 4.1% of 2019 forex transactions. 

The USD/CHF pair nicknamed Swissy comes in last with its 3.6% of forex transactions of 2019 daily trades. 

Demographics

Most forex traders are men in their thirties and forties. Although the numbers fluctuate, divided into age groups – 43.5% of traders are aged 25-34, 41.5% stretches over another decade (35-44 years of age) and 15% are older than 45. Such a large percentage of young people involved in trading forex can be explained by being born as digital natives. They were surrounded by computers, the Internet, tablets, and smartphones from childhood and they are up-close and personal with innovative technology. 

Genderwise, women make a tenth of all traders (or 10.9 % to be exact). Still, they outperform men by 1.8% as they are not prone to risky behaviour, but rather long-term strategies. Speaking of performance, only 15% of all traders make a profit, so 80% quit in just a year or two. Only 1% of traders are able to generate income for more than four consecutive quarters.

A mere 7% have been trading for over a decade and 23% for 4-9 years. That makes new traders a sizable group. 31% are in their first year of trading and another 39% have traded for 1-3 years.  On a day-to-day basis 45% of traders spend up to 2 hours a day dealing with forex, 41% invest 2-6 hours of their time, and 14% devote more than 6 hours to trading. Monthly, 35% of traders make 4-8 trades. 41% of traders make 9-20 trades, an average of 16 trades per month for a profitable trader. Finally, 14% make over 30 trades each month.

As they are driven by their will to succeed over 50% have acquired books, purchased courses, and strategy testers. Their online time is also focused on education and self-betterment and it is split between reading materials and watching trading-related content on one hand and finding advice on social media and forums on the other.

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