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Forex: Market Size And Liquidity

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Written by   396
6 months ago

Forex, the generation's door to wealth and goodlife.

The Foreign Exchange Market usually takes place on the ‘interbank market’, It's way bigger than the financial markets in the world. The world's Largest financial market, is the New York Stock Exchange Market (NYSE).

The Forex Market has either a physical location or a central Exchange but decentralized.

The most interesting fact about the Forex Exchange Market (FX Market), is that anyone from anyone location and any currency could be part of the FX market as long as you have an access to the internet.

Due to the fact that the Forex Market takes place over the internet and not a fixed location or place, it is called the OTC market an abbreviation for Over-the-counter market

How Large is The FX Market?

Image illustration of the FX market VS the world's largest financial market NYSE (Photo source: babypips)

The Forex Market from the illustration outgrows the NYSE market and the US dollars is the most traded currency, making up 84.9% of all transactions!

Playing much of the significant roles in the Forex Market, the reasons are being listed below;

First, it is no news that the United States Economy is the largest economy in the world, and based on their stable political system.

Also, The U.S. dollar is the medium of exchange for many international transactions.

Example

Oil is priced in U.S. dollars. Also called “petrodollars.” So if a Nigerian wants to buy oil from Saudi Arabia, it can only be bought with the U.S. dollar.

Exchange Speculations: The strength of Forex

Having known that Forex occurs when there is an exchange of one currency for another, most of the exchanges occur due to an individual's speculation.

What I'm trying to point out is that majority of the trade that occurs in the FX market comes from traders that buy and sell based on the short-term price movements of currency pairs.

It is estimated that out of 100% of the traded volume on the FX market, trade volumes brought by speculators is 90%.

What is Liquidity in Forex

The term Liquidity represents the scale of the FX market. In other words, the amount of buying and selling volume happening at any given time on the Foreign Exchange Market.

From the perspective of a trader, liquidity is very important because it determines how easily price can change over a given time period.

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