Many people wonder what the biggest market to trade in is. The answer is quite obvious, the Forex market is the biggest in the world. When we say big, you’ll be surprised to know that the Forex market has a turnover of $6.6 trillion a day in 2020.
Yes, in a single day, the Forex market manages to have such a massive turnover. If you’re someone who wants a taste of the big leagues, then you should consider Forex trading.
The size of the Forex market attracts traders who are looking to make day trader, swing trades, and scalp trades.
The Forex Market Explained
A very special thing about the Forex market is that it doesn’t have any physical location or a central exchange. Most of the Forex trading takes place on the “interbank market.”
Another feature of the Forex market is that it an over-the-counter market. This is because the entire Forex market runs electronically, with a huge network of banks on a 24-hour basis every weekday of the year.
The Forex market is the most spread out all over the globe with no specific central location. As long as you have a strong internet connection, you can trade from anywhere at any time!
We had mentioned earlier that the Forex market is big. The size of the Forex market is one of the reasons why it is the most popular financial market across the globe. A huge number of organizations and individuals around the world prefer trading in Forex!
In an over-the-counter market, the trader decides who they want to trade. It depends on the trading conditions, the price, and the reputation of the trading counterparty. Counterparty is a party that takes the opposite side of the same trade.
What makes the Forex Market unique?
You know that the Forex market is huge and popular. But, have you ever wondered about its uniqueness? Let’s see some of the main factors that make the Forex market stand out from all the other financial markets.
- Geographical spread
- High liquidity of the market
- Diverse and huge variety of traders
- Convenient trading hours
- Lower profit margins which can be enhanced with higher trading volumes
- External factors that directly influence the exchange rates
The daily turnover of the global Forex market has seen a 40 percent rise in the last decade. According to a report by LearnBonds, the first massive rise since 2001 was in 2010 when the daily turnover peaked at $4.0 trillion. In 2016 and 2019, the daily Forex turnover has grown by $1.5 trillion.
The reason for this boom in Forex daily turnover is that Forex has grown importance as an asset class. Another reason is the rise in fund management assets such as pension funds and hedge funds, which are still very popular.
Moreover, the internet also has a huge contribution in the Forex market. The simplicity of online trading platforms makes it easy for traders to immerse themselves in the trading culture. It makes them aware of the Forex trading factors, and others stay on top of their trades.
Who are the Biggest Forex Players?
According to the Bank for International Settlements Report, the traded amounts are classified in the following segments:
- Institutional Traders
These are usually huge banks, hedge funds, governments, and other similar portfolio managers.
- Retail Traders
This is an umbrella term for home traders, individual traders, and other professional traders who are not running large organizations.
There is a visible divide in the Forex market. On one side, we have the investment banks and huge institutions. And on the other, we have retail traders who are trying to earn profits.
Another surprising fact is that over 90% of the Forex market capital is through institutional trading. That means only 10% of the trades are made by retail traders.
The reason why you should understand these numbers is that the ‘big money’ is what moves the Forex market. Contrary to popular beliefs, the individual retail traders are not ‘moving markets.’
If you’re a retail trader, then keep these numbers in mind the next time you are managing your Forex trades. The statistics will reveal the reality of what is happening in the Forex market.
Who are the most active traders in the Forex market?
Can you believe it around 73% of the entire Forex trading volume is from the top 10 active traders? The Wall Street Journal Europe reported this shocking statistic.
Though the statistic might be surprising, it makes sense. All the names in the list are names of international banks and organizations that are huge players in the Forex market.
Let’s have a look at the top 10 active traders and the percentage of their Forex trading volume.
- Deutsche Bank- 19.80%
- UBS AG- 14.85%
- Citi- 9.00%
- Royal Bank of Scotland- 8.90%
- Barclays Capital- 8.80%
- Bank of America- 5.29%
- HSBC- 4.36%
- Goldman Sachs- 4.14%
- JPMorgan- 3.33%
- Morgan Stanley- 2.86%
Forex Market Liquidity and Volume
Since the Forex Market is available for 24-hours for all weekdays, having large liquidity is very crucial. When large volumes of orders are placed, that will create a steady flow of high liquidity.
High market liquidity allows you to enter the market easily and also better time your exit.
As compared to other financial markets, you don’t get trapped waiting for a buyer to enter. In the Forex market, the volume of trade is so high that you don’t have to wait to execute your trade.
It is often said that the Forex market is the most liquid financial market in the world, and it is. But what does that mean for your trading?
Liquidity is a term used to define how active a market is. The term liquidity is defined by the number of active traders and the total volume they are trading.
The reason why the Forex market is so liquid is that it is tradable 24 hours during weekdays. It is also a very wide and deep market with an astounding turnover of $6.6 trillion daily!
Liquidity fluctuates as the financial centers around the world open and close throughout the day. Generally, there is always a high volume of Forex trading happening at all times.
High Liquidity
High liquidity in Forex refers to a currency pair that can be bought/sold in substantial volumes without large changes in its exchange rate (price level) – e.g., Major currency pairs such as EUR/USD.
Other major currency pairs that every Forex trader should know of:
- USD/CAD
- GBP/USD
- AUD/USD
- USD/CHF
- NZD/USD
- EUR/GBP
- USD/JPY
Low Liquidity
Low liquidity in Forex refers to a currency pair that cannot be bought/sold in significant volumes without large differences in its exchange rate– e.g., Exotic currency pairs such as PLN/JPY.
Which are the Most Heavily Traded Currency Pairs?
Here is a brief overview of the ten most traded currencies by value. This table shows the currency distribution of global foreign exchange market turnover.
| Rank | Currency | ISO 4217 code (symbol) | % of daily trades (bought or sold) (April 2019) |
| 1 |  United States dollar | USD (US$) | 88.3% |
| 2 |  Euro | EUR (€) | 32.3% |
| 3 |  Japanese yen | JPY (¥) | 16.8% |
| 4 |  Pound sterling | GBP (£) | 12.8% |
| 5 |  Australian dollar | AUD (A$) | 6.8% |
| 6 |  Canadian dollar | CAD (C$) | 5.0% |
| 7 |  Swiss franc | CHF (CHF) | 5.0% |
| 8 |  Renminbi | CNY (元) | 4.3% |
| 9 |  Hong Kong dollar | HKD (HK$) | 3.5% |
| 10 |  New Zealand dollar | NZD (NZ$) | 2.1% |
(Source: Wikipedia)
Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%
The American dollar is the most traded currency, making up 88.3% of all Forex transactions!
The euro’s share is in second place with 32.3%, while that of the yen in third place at 16.8%.
If you observe the table closely, you’ll notice most of the major currencies are hogging the top spots on this list!
What’s interesting to see is that the Chinese Yuan (Renminbi) is now sitting in 8th place of most-traded currencies after a steady climb on this list from the bottom.
What Countries Trade the Most Forex?
If you see the Bank for International Settlements 2019 report, you’ll see the top three countries with the largest Forex trading volume are the United Kingdom, the United States of America, and Singapore.
Notice the graph below, which gives you a graphical representation of the countries that trade the most Forex.
UK, USA, and Singapore have such high trading volumes, the trading market is lopsided. That is also why trading markets look at Asian, London, and New York sessions.
When the two biggest players have their trading session overlap, then the largest amount of trading is carried out. The London and New York trading sessions are trading around the same time, which processes a large portion of the day’s volume.
Summary
Not only is the Forex market huge and volatile, but also very profitable if you play your cards right. Now that you know the statistics regarding the currency pairs, countries, and active traders, you can make a calculated decision when you trade in Forex.
If you wish to try your hand at trading, you can open up a demo account at IC Markets or XTB to get first-hand experience without risking your money.