Forex Market Size And Liquidity

Think of a market which does a daily turnover of around US$ 3billion on an average on a sustained basis having a liquidity crunch. This statement can be sort of a click for the novice but weaker volumes doing high values render the forex market to reverse trend sooner than later but for the moment will be suspect to absorb all ask deals. A trader will get stuck up here and will incur losses.

The above scenario is a strange one despite having a great price run but normal cases do differ and both the entities, market size and liquidity, do work complementing each other. In a way the enormous size of the market can be attributed to the high volume turnouts. It is this high volume that sees all deals execute completely without slippage. If not for the 24 hour trade the market would have suffered huge losses considering the enormous size.

Some Forex Market Statistics

Let us see some statistics that pertain to the market size. Forex market did a daily average turn over of US$1,770 billions as of 2004 which crossed $2,000 the very next year. This figure does not count the global trades which accounts for another $829 billions. The global forex market does another $1.26 trillion turnover in forex derivatives and close to a trillion dollars in swaps. This is ten folds greater the size of the total turnover on all the equity markets of this world put together.

The trading value and size is also increasing at a breakneck speed. It jumped 38% between April 2005 and April 2006 and has swelled 100% since 2001. The top 10 forex centers do a total of 73% of the trading volume and of which, the most prominent one, London accounts for 31.3% overall.

If this is one side of the story, you have large market players on the other. Deutsche Bank garners a mind boggling turnover of about 17%, while UBS and Citi Group account for another 20% of the daily turnover. These figures include all types of orders and clients including different national central banks which are not there for business purposes.

What Does This Mean To The Retail Trader?

Larger market participants work on spread (difference amount between ask and bid price). Although the volumes are quite huge they are mostly in electronic figures which can be carried forward to next settlement cycles absorbing losses.

A retailer can take comfort that s/he will not get stuck-up so easily unless one is not prepared to book a marginal loss.