Forex Overview

Introduction

The following facts and figures relate to the foreign exchange market. Most of the information comes from the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2004, and published in March 2005. 52 central banks and monetary authorities participated in the survey, collecting information from approximately 1200 market participants.

Structure

1.  Decentralized, over-the-counter market, also known as the 'interbank' market.
2. Main participants: Central Banks, commercial and investment banks, hedge funds, pension funds, corporations & private speculators. 
3.  The free-floating currency system began in 1973, and was officially mandated in 1978. 
4.  Online trading began in the mid to late 1990's.

Trading Hours

1. 24 hour market,Sunday 5pm EST through Friday 4pm EST. Rollover at 5pm EST.
2. Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America.

Size

1. Largest market in the world. 
2.  $1.9 trillion average daily turnover, equivalent to:

• More than 10 times the average daily turnover of global equity markets 1
• 40 times the average daily turnover of the NYSE 2
• $300 a day for every man, woman, and child on earth
• An annual turnover more than 10 times world GDP 3

   3.   The spot market accounts for about one-third of daily turnover .

•  About $167 billion - World Federation of Exchanges aggregate 2004 .
•  About $46 billion - NYSE 2004 .
• About $36 trillion - World Bank 2003.

Major Markets

1. The US & UK account for more than 50% of turnover. 
2.  Major markets: London, New York, Tokyo. 
3.  Trading activity is heaviest when major markets overlap. 
4.  Nearly two-thirds of NY activity occurs in the morning hours while European markets are open 24 hrs.

Average Daily Turnover by Country

 

Concentration in the Banking Industry

1. 16 banks account for 75% of turnover in the U.K. 
2.  11 banks account for 75% of turnover in the U.S.
3.  11 banks account for 75% of turnover in Japan.

Note: The reference here is to individual banking offices rather than banking organisations.
 
Trading

1. An estimated 95% of transactions are speculative. 
2.  More than 40% of trades last less than two days.
3.  About 80% of trades last less than one week.
4.  Brokers research: 90% of traders lose money, 5% break even, 5% make money.

Technical Analysis
Commonly used technical indicators:

1. Moving averages 
2.  RSI 
3.  Fibonacci retracements 
4.  Stochastics 
5.  MACD 
6.  Momentum 
7.  Bollinger bands 
8.  Pivot point 
9.  Elliott Wave

Currencies

1. The US dollar is involved in approximately 90% of all foreign exchange transactions, equivalent to over $1.5 trillion a day.

Currency Codes


USD = US Dollar

EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar

NZD = New Zealand Dollar

Average Daily Turnover by Currency

Note:  Because two currencies are involved in each transaction, the sum of the percentage shares of            

            individual currencies totals 200% instead of 100%.

Currency Pairs

1.  Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF 
2.  Dollar bloc: USD/CAD, AUD/USD, NZD/USD 
3.  Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair