Forex, also known as foreign exchange or currency trading, is the largest and most liquid financial market in the world. It involves the buying and selling of currencies from different countries, with the goal of making a profit from fluctuations in exchange rates. The forex market operates 24 hours a day, five days a week, and is accessible to traders all over the world.
The daily trading volume in the forex market is difficult to estimate precisely due to the decentralized nature of the market. Unlike other financial markets such as stocks or futures, there is no central exchange or clearing house in the forex market. Rather, trading takes place over-the-counter (OTC) through a network of banks, brokers, and other financial institutions.
However, several organizations and institutions collect data on forex trading volume and provide estimates. According to the Bank for International Settlements (BIS), the average daily trading volume in the forex market was $6.6 trillion in April 2019. This represents a significant increase from the previous estimate of $5.1 trillion in April 2016.
The BIS is a global financial organization that serves as a hub for central banks and other financial institutions. It conducts regular surveys of the forex market and publishes its findings in the Triennial Central Bank Survey. The survey is based on data from the central banks of 52 countries, which together account for around 95% of global forex trading volume.
The BIS survey provides a comprehensive view of the forex market, including the breakdown of trading volume by currency pair, geographical region, and type of market participant. The survey found that the US dollar was the most traded currency, involved in 88% of all forex transactions. The euro and Japanese yen were the second and third most traded currencies, with a share of 32% and 17%, respectively.
In terms of geographical regions, the BIS survey found that the majority of forex trading volume takes place in Europe, followed by Asia and North America. The UK is the largest forex trading center in the world, accounting for 43% of global trading volume. Other major centers include the United States, Japan, and Singapore.
The BIS survey also provides insights into the types of market participants involved in forex trading. The majority of trading volume comes from banks, which account for 44% of all transactions. Other important market participants include institutional investors, hedge funds, and retail traders.
The increase in forex trading volume can be attributed to several factors. Firstly, the globalization of the economy has led to an increase in cross-border trade and investment, which requires the exchange of currencies. Secondly, advances in technology have made it easier for individuals and institutions to access the forex market and trade currencies online. Finally, the low interest rate environment in many developed countries has led to a surge in currency carry trades, where investors borrow in low-yielding currencies and invest in higher-yielding currencies.
In conclusion, the forex market is the largest and most liquid financial market in the world, with an estimated daily trading volume of $6.6 trillion. The BIS survey provides a comprehensive view of the forex market, including the breakdown of trading volume by currency pair, geographical region, and type of market participant. The increase in forex trading volume can be attributed to the globalization of the economy, advances in technology, and the low interest rate environment.
