Forex Market Size and Liquidity

There are several factors that contribute to the foreign exchange market's uniqueness.

These are:

* Extreme liquidity of the market
* Geographical dispersion
* Larger numbers of traders (and the variety of) in the market
* Length of trading hours (24 hours a day, except on weekends)
* Lower profit margins compared to other fixed income markets (profits can occasionally be higher based on trading volume)
* Trading volume amounts
* Variety of factors directly affecting exchange rates

The fx market is considered to be the epitome of ideal or perfect competition. Based on statistics compiled by the Bank for International Settlements (BIS), average daily trading for this time of year stands at $3.21 trillion in volume. This volume was broken down into four categories, namely:

1. $1.714 trillion in forex swaps

OTC derivatives with short-term interest rates

2. $1.005 trillion in spot transactions

Using one currency to purchase another for purposes of immediate rather than future delivery

3. $362 billion in outright forwards

Agreements established between two parties to purchase or sell assets for a pre-agreed upon price

4. $129 billion in estimated reporting gaps

The concept of forex traded futures contracts came into being in 1972 at the Chicago Mercantile Exchange, and has progressively grown into the viable segment of the forex exchange that they are today.

According to the Wall Street Journal, futures now account for approximately 7% of the total volume traded on the foreign exchange.