Forex trading is a popular investment option for many people around the world. However, to be successful in forex trading, it is important to understand how to calculate volume. Volume is a key metric in forex trading that helps traders to understand the size of the market and the number of transactions taking place. In this article, we will explain how to calculate volume on forex.
What is Volume in Forex Trading?
Volume in forex trading refers to the total number of shares, contracts or lots that are traded during a given period. It is a measure of the amount of activity in the market. In simple terms, volume refers to the number of buyers and sellers in the market. High volume indicates that there are many buyers and sellers in the market, while low volume indicates that there are fewer buyers and sellers.
How to Calculate Volume on Forex?
There are several ways to calculate volume in forex trading. Here are some of the most common methods:
1. Tick Volume
Tick volume is a method of calculating volume that is based on the number of price changes in a particular currency pair. It is calculated by counting the number of ticks or price changes that occur over a given period. This method is used by many forex brokers to calculate volume.
2. Standard Volume
Standard volume is a method of calculating volume that is based on the number of contracts or lots that are traded in a particular currency pair. It is calculated by multiplying the number of contracts or lots by the size of each contract or lot.
For example, if you buy 10 standard lots of EUR/USD, each lot is 100,000 units of the base currency (EUR). Therefore, the total volume of the trade would be 10 x 100,000 = 1,000,000 units of the base currency (EUR).
3. Time-Based Volume
Time-based volume is a method of calculating volume that is based on the number of trades that are executed during a given time period. It is calculated by counting the number of trades that are executed over a particular time period, such as an hour or a day.
How to Use Volume in Forex Trading?
Volume is an important metric in forex trading that can help traders to make better trading decisions. Here are some of the ways that volume can be used in forex trading:
1. Confirmation of Trends
Volume can be used to confirm trends in the market. When there is a high volume in a particular currency pair, it is an indication that the trend is strong and likely to continue. Conversely, when there is a low volume in a currency pair, it is an indication that the trend may be weakening.
2. Trading Range Breakouts
Volume can be used to identify trading range breakouts. When there is a sudden increase in volume in a particular currency pair, it is an indication that the market is breaking out of a trading range. Traders can use this information to enter trades in the direction of the breakout.
3. Reversals
Volume can be used to identify potential reversals in the market. When there is a sudden decrease in volume in a particular currency pair, it is an indication that the market may be reversing. Traders can use this information to exit trades or to enter trades in the opposite direction.
Conclusion
Volume is an important metric in forex trading that can help traders to make better trading decisions. There are several methods of calculating volume in forex trading, including tick volume, standard volume, and time-based volume. Traders can use volume to confirm trends, identify trading range breakouts, and potential reversals in the market. By understanding how to calculate volume on forex, traders can gain a better understanding of the market and make more informed trading decisions.
