Forex, or foreign exchange trading, is the largest financial market in the world. With over $5 trillion traded daily, it dwarfs the stock market and other financial markets combined. But how much money is actually traded on forex daily?
The answer to this question is not straightforward, as forex trading is a decentralized market with no central exchange or clearinghouse. Instead, forex trading takes place over-the-counter (OTC) through a global network of banks, brokers, and other financial institutions.
Despite the lack of a centralized exchange, data on forex trading volumes is still available through various sources. The most widely cited figures come from the Bank for International Settlements (BIS), which conducts a triennial survey of the global forex market.
According to the most recent BIS survey, conducted in April 2019, the average daily trading volume in the global forex market was $6.6 trillion. This represents a 30% increase from the previous survey in 2016, and a 109% increase from the survey conducted in 2010.
The increase in trading volume can be attributed to a number of factors, including the growth of electronic trading platforms, the expansion of emerging market economies, and the increasing popularity of forex trading among retail investors.
Breaking down the $6.6 trillion daily trading volume, the BIS survey found that the majority of forex trading takes place in the spot market, which accounts for 39% of total trading volume. The spot market is where currencies are bought and sold for immediate delivery, with settlement typically taking place within two business days.
The remaining 61% of trading volume is divided between the forex derivatives market and the forwards market. The forex derivatives market includes options and futures contracts, which allow traders to hedge against currency risk or speculate on future price movements. The forwards market, on the other hand, involves the buying and selling of currencies for future delivery at a predetermined exchange rate.
While the BIS survey provides a comprehensive picture of the global forex market, it is important to note that it only captures a portion of the total trading volume. Many forex transactions are not captured by the survey, particularly those conducted by non-financial institutions such as multinational corporations and governments.
Additionally, the BIS survey only covers the interbank market, which is the market where banks and other financial institutions trade with each other. It does not include the retail forex market, where individuals trade currencies through online brokers.
Despite these limitations, the BIS survey provides valuable insights into the size and dynamics of the global forex market. It underscores the importance of forex trading in the global economy, and highlights the opportunities and risks associated with this fast-paced and dynamic market.
In conclusion, the global forex market is a massive and complex market, with daily trading volumes exceeding $6.6 trillion. While this figure reflects only a portion of the total trading volume, it provides a useful benchmark for understanding the scale and significance of forex trading in the global economy. As with any financial market, forex trading carries risks and rewards, and requires careful analysis and risk management to be successful.
