The forex market is an integral part of the modern world. Sometimes when people hear about news connected to the forex market, they may find it hard to understand the news. Nevertheless, it is not as complicated as a lot of people think it is, and let’s have a look at forex markets.
A lot of people participate in the forex market on a daily basis. For example, imagine you are traveling and after arriving at your place of destination. The first idea that comes to any traveler’s mind is how to get the local currency.
At the airports, as well as in many places around the city there is an exchange booth. You can exchange your currency, and in return, you will receive the corresponding amount in the local currency. This is just one example of how the forex markets are part of everyday life. It means that an individual can participate in the forex market without even realizing this fact.
It is worth mentioning that the forex exchange market is the largest financial market in the world. The average daily trading volume is equal to $5 trillion. We have to take into consideration that the trading volume mentioned above includes the whole foreign exchange market, such as global travelers, political purchases, etc.
The trading volume from retail traders is around 5-6% of the total amount. It means that the daily trading volume of retail traders is about $300-400 billion.
Another interesting fact is that the market is open for 24 hours a day and five days a week. Forer markets are closed during the weekend.
The first market which starts functioning is in Sydney, followed by Tokyo, London, etc. It means that any time apart from the weekend there is a forex market which is up and running.
Forex market size
Let’s learn more about the forex market’s size and liquidity. We can start with forex markets. First of all, it is essential to remember that the foreign exchange market has no physical location.
The forex market is considered to be over-the-counter. Also, another interesting information is that it is the interbank market as the whole market is run electronically. There is no central location.
The main currency and the market leader is the U.S. dollar. More than 80% or more precisely 84.9% of all transactions happens in the U.S. dollar.
This data makes sense as the U.S. has the largest economy in the world. Also, it has the most liquid financial markets. There are other factors as well. For instance, the U.S has the best-armed forces around the globe. Also, what is very important is the fact that is has a stable political system. In this situation, it is not surprising that the U.S. dollar is a dominant currency.
Also, let’s forget that the U.S. dollar is used for many cross-border transactions. The cross-border transaction means that if Germany wants to buy oil from Saudi Arabia, it has to pay the price of oil in the U.S. dollar. This is the case since 1975 when OPEC members decided to sell oil only in the USD.
This is just one example of a cross-border transaction. However, it helps to realize the importance of USD to the forex markets.