The Central Bank Survey of profiting from FOREX and Derivatives Market Activity, coordinated by the Bank for International Settlements stated that turnover in the FOREX grew by 45 % to $1.2 trillion.
Official figures show the U.S. dollar on one side of 83 % of spot profiting from FOREX transactions and in 95 % of all deals in the swaps market. The Euro remains the second most important currency in the FOREX market, with 37 % (40 % in 1992). The Japanese yen (24 %) and the British pound sterling (10 %) are ranked third and fourth in profiting from FOREX. The Swiss franc's share was 7 %, and both the Australian and Canadian dollars accounted for 3 %. Perhaps the most interesting statistic is "Other Currencies," which now account for 8 % and rising.
As a result of the consolidation of currencies with the development of the Euro, nearly 90 % of the daily volume in the FOREX passes through these six major currency cross rates even though the bulk of all exchange transpires through the United Kingdom, the United States, and Japan.
Profiting from FOREX VOLUME
Unlike the stock market, where there are more than 40,000 stocks to choose from, a profiting FOREX trader needs to follow only the six major currencies and their relative pairings. To take this a step further, most of the professional currency traders around the world concentrate only on three currency pairs. The EUR/USD and the USD/JPY are probably the two most heavily traded currency pairs.
London remains the world's largest FOREX center, with daily turnover of $464 billion or 35 % of the world's total daily volume.
Profiting from FOREX VOLUME
In the same period, both the Federal Reserve Bank of New York and the Bank of Japan reported smaller percentage increases of 46 and 34 %, to $244 billion and $161 billion, respectively (compared with $167 and $120 billion in 1992).
The next 4 most important centers are Singapore, Hong Kong, Switzerland, and Germany, with daily turnovers ranging from $105 billion to $76 billion. France was ranked eighth, with a turnover of $58 billion.
A larger share of business in both the U.S. dollar (30 %) and the Euro (28 %) takes place in London rather than in either the United States (16 %) or Germany (10 %). London is also the most important site, after its own domestic markets, for the trading of Japanese yen, Swiss francs, and Canadian and Australian dollars in the FOREX market.
In addition, London remains the most diversified profiting from FOREX market. In New York, 64 % is between the U.S. dollar and the four major currencies (Euro, Japanese yen, British pounds sterling, and the Swiss franc; 74 % in 1992), compared with 55 % in London. In Tokyo, the range of currencies traded is even more limited; the US. dollar/Japanese yen accounts for 76 % of turnover, up from 67%.
Profiting from FOREX VOLUME
While London remains the world's profiting from FOREX capital, (the North American principals continue to be the most active, with a 42 % market share. As you know, there is only one way to make money trading anything– buy lower and sell higher (or sell higher and buy back lower for short sales).
To buy lower and sell higher, prices must trend higher from where you bought (or lower from where you sold). If prices never trended, there would never be an opportunity to make a profit. Furthermore, without up and down price trends, institutional traders (hedgers) would have no need to insure themselves from price changes, and trading volume would disappear. What this means is that price trends are the essence of all profitable trading.
The realization that trends are the essence of profitable trading makes the idea of trading currencies very exciting because currencies are the world's best trending markets. Countless studies of trend-following systems prove invariably that currency trends are the most consistent and profitable.
Profiting from FOREX VOLUME
Regardless of the type of trend-following system used long term, intermediate term, or short invariably outperform all other markets, including stocks, bonds, and other commodities. It should come as no surprise that some of the world's most successful traders are currency traders.
One reason that currencies trend better than every other market is because of their macroeconomic nature. Unlike many commodities whose supply and demand fundamentals literally can change with the weather, currency fundamentals are much less random and far more predictable.
For example, let's consider interest-rate differentials. Assume that U.S. interest rates are 4 % and German interest rates are 6 %. If you could borrow $1 million at 4 % from one bank and invest it at 6 % at another bank, would you? Of course you would! (With interbank currency trading, you can.)
Profiting from FOREX VOLUME
The difference between 4 and 6 % will attract international investors to borrow billions of U.S. dollars at 4 % and invest them in German marks at 6 %. Remember, such interest-rate differentials between countries are likely to last for some time. The United States would never change interest rates from 4 to 6 % overnight, nor would Germany change interest rates from 6 to 4 % overnight.
Large changes in interest rates over a short time could cause economic chaos. Therefore, as long as investors can buy German marks with U.S. dollars and receive sizable profits, billions of dollars will continue to buy those German marks, pushing prices for them ever higher (a classic trend). This is just one of several important reasons why currency trends tend to be so long and pronounced.
The FOREX has expel waited spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily volume in 1977 was US$5 billion, it increased to US$600 billion in 1987 and reached the 2.5 trillion mark since 2000.
Profiting from FOREX VOLUME
In summary, profiting from FOREX currencies is one of the best all-around markets. Interbank currencies represent the world's largest marketplace and have the most powerful and persistent price trends. Propensities for strong and sustained price trends give interbank currency traders a profit-making edge that is unavailable in any other market. |
