Forex, or foreign exchange, is the largest financial market in the world. It involves the buying and selling of currencies from different countries, with the aim of making a profit from the difference in their values. The forex market is open 24 hours a day, five days a week, and is highly liquid, meaning that there is a lot of money being traded every day. But just how much is traded daily in forex?
According to the Bank for International Settlements (BIS), the average daily turnover in the forex market was $6.6 trillion in April 2019. This represents a 29% increase from the previous survey in 2016, and is the highest level on record. To put this figure in perspective, the daily turnover in the global stock market is around $84 billion, which is just over 1% of the daily turnover in forex.
So why is the forex market so large? One reason is that it is the primary means of conducting international trade and commerce. When a company in one country wants to buy goods or services from a company in another country, they need to pay in the local currency. This means that there is a constant demand for different currencies, which drives the volume of trading in the forex market.
Another reason for the size of the forex market is the high leverage that is available to traders. Leverage allows traders to control a large amount of currency with a small amount of capital. For example, if a trader has a leverage ratio of 100:1, they can control $100,000 worth of currency with just $1,000 of capital. This means that even small movements in the exchange rate can result in large profits or losses, which attracts traders to the market.
The forex market is also highly accessible to retail traders, meaning that anyone with an internet connection and a computer can participate. This has led to a surge in the number of forex traders in recent years, which has contributed to the increase in daily turnover.
The forex market is dominated by a few major currencies, with the US dollar being the most traded currency in the world. Other popular currencies include the Euro, Japanese Yen, British Pound, Swiss Franc, and Canadian Dollar. These currencies are often traded in pairs, such as USD/EUR or USD/JPY, with the exchange rate representing the value of one currency in terms of the other.
The forex market is also heavily influenced by economic data and news events. For example, if the US Federal Reserve announces an interest rate hike, this can cause the US dollar to appreciate against other currencies. Similarly, if there is a geopolitical crisis or a natural disaster, this can cause volatility in the forex market as traders try to predict the impact on different currencies.
In conclusion, the forex market is the largest financial market in the world, with an average daily turnover of $6.6 trillion. This is driven by the constant demand for different currencies in international trade and commerce, the high leverage available to traders, and the accessibility of the market to retail traders. While the forex market is highly liquid and offers opportunities for profit, it is also a complex and risky market that requires careful analysis and risk management.
