Forex Market Size And Liquidity FULL GUIDE

Foreign exchange market size and liquidity

Unlike other financial markets such as the New York Stock Exchange (NYSE) or the London Stock Exchange (London Stock Exchange), the foreign exchange market has neither physical location nor central exchange.

The foreign exchange market is considered an over-the-counter (OTC) or “inter-bank” market because the entire market operates electronically within the banking network for more than 24 hours.

This means that the spot foreign exchange market is global and has no central location. As long as you have an internet connection, the transaction can be done anywhere!

Foreign exchange market size and liquidity

The foreign exchange over-the-counter market is by far the largest and most popular financial market in the world, and is traded globally by numerous individuals and organizations.

In the over-the-counter market, participants determine the objects they want to trade based on trading conditions, the attractiveness of the price, and the reputation of the counterparty.

The US dollar is the most traded currency, accounting for 84.9% of all transactions. The euro's share ranked second with 39.1%, while the yen was third with 19.0%. As you can see, most major currencies are the first in this list!

The Dollar is King in the Forex Market

You may have noticed that we are constantly referring to the frequency of the US dollar (USD).

If the dollar is half of every major currency pair and the major currency accounts for 75% of all transactions, then the dollar must be concerned. The dollar is king!

In fact, according to the International Monetary Fund (IMF), the dollar accounts for about 64% of the world's official foreign exchange reserves! Because almost every investor, business, and central bank owns it, they care about the dollar.

There are other important reasons why the dollar plays a central role in the foreign exchange market 

The US economy is the largest economy in the world.

The dollar is the reserve currency of the world.

The United States has the largest and most liquid financial market in the world.

The United States has a stable political system.

The United States is the only military superpower in the world.

The US dollar is the medium of exchange for many cross-border transactions. For example, oil is denominated in US dollars. Also known as "the oil dollar." Therefore, if Mexico wants to buy oil from Saudi Arabia, it can only buy it in dollars. If Mexico does not have any dollars, it must first sell its pesos and buy dollars.

An important note about the foreign exchange market is that while commercial and financial transactions are part of the volume of trading, most currency transactions are based on speculation.

In other words, most of the trading volume comes from traders who buy and sell based on intraday price changes.

Questions about the foreign exchange market

The volume of transactions brought by speculators is estimated to be over 90%!

The size of the foreign exchange market means liquidity - the amount of trading that occurs at any given time - is very high.

This makes it easy for anyone to buy and sell currency.

From a trader's perspective, liquidity is important because it determines how easy it is to change prices at a given time.

A liquid market environment like Forex can achieve huge trading volumes with minimal impact on price or price behavior.

Although the foreign exchange market is relatively highly mobile, the market depth may vary depending on the currency pair and time.

During our school's forex trading hours, we will tell you how the trading time affects the currency pair of your trade.

At the same time, here are some tips on how to trade currencies in a variety of ways. We even narrowed it down to four!