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Forex Statistics

Analyzing Forex Market Volumes

Foreign Exchange Market Volumes

Volume is a leading market indicator that can help traders to recognize strong trends and reversals, but also to identify the current market phase and to think ahead of the current price action.

In general, analyzing market volumes can be helpful in:

  • Evaluating the strength of a price trend
  • Confirming the breakout of a key support/resistance level
  • Recognizing the market phases of accumulation/distribution
  • Indicating signs of potential price reversal
  • Optimizing the time to enter/exit the market

The Aggregate Forex Market Volumes

All organized exchanges report daily the aggregate number of traded financial assets (contracts, shares, etc.). On the contrary, the Foreign Exchange market is an OTC (Over-the-Exchange) decentralized market and that means measuring the aggregate volumes is a very difficult task. The Bank of International Settlements (BIS) offer some insight regarding Foreign Exchange volumes.

Here are some key points according to BIS Triennial Survey (2016):

  • The Foreign Exchange market daily volumes average over 5.0 trillion USD
  • Spot transactions reach 1.7 trillion USD per day (diminishing for the first time since 2001)
  • FX swaps transactions reach 2.4 trillion USD per day (Forex traders are showing an increasing interest for derivatives contracts)
  • Outright Forwards reach 0.7 trillion USD per day
  • Options and Similar products reach 0.25 trillion USD per day
  • The US dollar remains the dominant vehicle currency, being on one side of 88% of all Forex transactions (Euro 31%)
  • Five countries (UK, USA, Singapore, Hong Kong, and Japan) contribute 77% of all Foreign Exchange transactions

Source: http://www.bis.org/publ/rpfx16fx.pdf

Forex Market Sessions and Volume

The London Session is traditionally the most active Forex session and the New York session is the second most active. The London/New York session overlap offers the most volume-active Forex trading hours.

■ Volume peaks between 12.00 GMT and 16.00 GMT

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Read more: Analyzing Forex Market Volumes

Algorithmic or Mechanical Trading

Algorithmic, Algo, Mechanical, Systematic, or Rule-Based trading, refers to a trading method where order execution is based exclusively on a pre-defined set of rules and instructions.Introduction to Algorithmic or Mechanical Trading

 

What is Algorithmic/Mechanical Trading?

Algorithmic, Algo, Mechanical, Systematic, or Rule-Based trading, refers to a trading method where order execution is based exclusively on a pre-defined set of rules and instructions.

 Mechanical-trading rules and instructions include variables such as price, time, and volume

 Mechanical-trading usually refers to a software code (automated-trading), but it can be also based on manual execution

 

Who Applies Algorithmic Strategies?

Several different market participants apply algorithmic strategies, such as investment firms, hedge funds, high-frequency trading firms, large individual traders, and small retail traders.

In the top of the chain, there are several large hedge funds and investment firms using state-of-the-art technology and hiring a wide team of programmers, mathematicians, and professional traders. They use proprietary systems, programmed to trade tiny inefficiencies between the dynamics of demand and supply. These strategies can focus on a single financial market, or on multiple asset classes. The asset classes involved include shares, ETFs, currencies, and government bonds.

Can Retail Traders Compete?

In the short-term, retail traders are unable to compete against institutional traders holding superior technology and unlimited resources. Retail traders can only develop and apply mechanical systems aiming to trade price swings lasting from a few hours to several days.

Read more: Algorithmic or Mechanical Trading

Trading Forex by Following the Smart Money

The Smart MoneyFollowing the Smart Money -The Six (6) Indicators

Traders who are able to recognize and to follow the movements of the smart money can improve significantly their trading performance.

What is the Smart-Money?

Smart money can be defined as the capital invested by traders with expert knowledge and often with inside information. The smart money can spot trends before others and trades basically against the general market sentiment.

Smart-Money and the Foreign Exchange Market

The Foreign Exchange market is a decentralized (OTC) market and that means there is no track record of the aggregate trading activity. That makes things even more difficult in identifying the smart money movements. However, there are quite a few indicators providing an insight to where the smart money is flowing.

This analysis includes the following indicators:

(1) Following the Long-Term Circles of Unemployment, Inflation, and Growth

(2) COT Analysis (Commitment of traders)

(3) The US-Dollar Index (USDX)

(4) The CBOE Volatility Indexes (VIX & Skew Index)

(5) The Treasury Bills Correlations

(6) Contrarian-News Approach

Read more: Trading Forex by Following the Smart Money

Compare Forex Currencies

COMPARE  FOREX CURRENCIES

-Forex Calendar-

 (Based on Research starting January 2000 and ending September 2013)

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   EUR/USD  GBP/USD  USD/JPY USD/CAD  EUR/CHF  AUD/USD
AVERAGE EURUSD CHANGE TIMES (↑ - ↓) AVERAGE GBPUSD CHANGE TIMES (↑ - ↓) AVERAGE USDJPY CHANGE TIMES (↑ - ↓) AVERAGE USDCAD CHANGE TIMES (↑ - ↓) AVERAGE EURCHF CHANGE TIMES (↑ - ↓) AVERAGE AUDUSD CHANGE TIMES (↑ - ↓)
1. PER MONTH      
JANUARY -0.8% 6↑ - 8↓ 0.0% 6↑ - 7↓ 0.6% 9↑ - 5↓ 0.0% 8↑ - 6↓ 0.4% 8↑ - 6↓ -0.2% 6↑ - 8↓
FEBRUARY -0.3% 7↑ - 7↓ -1.0% 6↑ - 8↓ 0.8% 8↑ - 6↓ 0.2% 6↑ - 7↓ -0.4% 4↑ - 10↓ 0.2% 9↑ - 5↓
MARCH 0.3% 7↑ - 7↓ -0.2% 8↑ - 6↓ 0.8% 9↑ - 5↓ -0.2% 6↑ - 8↓ 0.0% 10↑ - 4↓ 0.0% 7↑ - 7↓
APRIL 0.7% 7↑ - 7↓ 1.3% 12↑ - 2↓ 0.2% 6↑ - 8↓ -1.1% 4↑ - 10↓ 0.2% 6↑ - 8↓ 1.8% 11↑ - 3↓
MAY -0.5% 6↑ - 8↓ -0.5% 4↑ - 10↓ -0.5% 5↑ - 9↓ -0.7% 6↑ - 8↓ -0.3% 6↑ - 8↓ -0.9% 4↑ - 10↓
JUNE 0.6% 9↑ - 5↓ 0.8% 9↑ - 5↓ 0.1% 8↑ - 6↓ 0.2% 5↑ - 9↓ -0.5% 6↑ - 8↓ 0.6% 9↑ - 5↓
JULY 0.1% 6↑ - 8↓ 0.5% 7↑ - 7↓ -0.3% 8↑ - 6↓ -0.2% 7↑ - 7↓ -0.3% 7↑ - 7↓ 0.4% 7↑ - 7↓
AUGUST -0.3% 8↑ - 6↓ -0.9% 5↑ - 9↓ -1.4% 4↑ - 10↓ 0.1% 6↑ - 8↓ -0.3% 6↑ - 8↓ -1.0% 4↑ - 10↓
SEPTEMBER 0.8% 7↑ - 6↓ 0.4% 8↑ - 5↓ -0.2% 7↑ - 6↓ -0.4% 5↑ - 8↓ 0.4% 8↑ - 5↓ -0.1% 7↑ - 6↓
OCTOBER -0.5% 7↑ - 6↓ 0.1% 8↑ - 5↓ -0.9% 5↑ - 8↓ 0.6% 7↑ - 6↓ -0.8% 6↑ - 7↓ 0.4% 10↑ - 3↓
NOVEMBER 0.5% 7↑ - 6↓ -0.6% 4↑ - 9↓ -0.2% 6↑ - 7↓ -0.3% 5↑ - 8↓ -0.3% 5↑ - 8↓ 0.4% 8↑ - 5↓
DECEMBER 1.9% 8↑ - 5↓ 0.4% 5↑ - 8↓ 0.9% 7↑ - 6↓ -0.2% 6↑ - 7↓ -0.5% 7↑ - 6↓ 1.3% 7↑ - 6↓
2. PER SEMESTER
A' SEMESTER 0.1% 7↑ - 7↓ 0.3% 9↑ - 5↓ 2.0% 9↑ - 5↓ -1.6% 7↑ - 7↓ -0.6% 7↑ - 7↓ 1.6% 8↑ - 6↓
B' SEMESTER 2.2% 9↑ - 4↓ -0.3% 7↑ - 6↓ -2.9% 5↑ - 8↓ -0.8% 6↑ - 7↓ -0.9% 6↑ - 7↓ 2.5% 7↑ - 6↓
3. PER QUARTER          
A' QUARTER -2.8% 4↑ - 0↓ -4.4% 5↑ - 9↓ 7.8% 11↑ - 3↓ 0.1% 9↑ - 5↓ -0.1% 8↑ - 6↓ 0.2% 9↑ - 5↓
B' QUARTER 2.9% 4↑ - 0↓ 5.6% 9↑ - 5↓ -0.7% 6↑ - 8↓ -5.7% 6↑ - 8↓ -1.9% 6↑ - 8↓ 5.3% 8↑ - 6↓
C' QUARTER 1.8% 2↑ - 2↓ -0.2% 8↑ - 6↓ -6.8% 6↑ - 8↓ -1.8% 8↑ - 6↓ -0.8% 7↑ - 7↓ -2.5% 8↑ - 6↓
D' QUARTER 6.3% 4↑ - 0↓ -0.5% 7↑ - 6↓ -0.9% 6↑ - 7↓ 0.3% 5↑ - 8↓ -5.2% 3↑ - 10↓ 7.0% 10↑ - 3↓
4. PER SEASON           
AUTUMN 2.6% 8↑ - 5↓ -0.5% 8↑ - 5↓ -4.5% 6↑ - 7↓ -0.3% 7↑ - 6↓ -2.3% 6↑ - 7↓ 2.3% 8↑ - 5↓
WINTER 2.6% 6↑ - 8↓ -2.4% 7↑ - 7↓ 7.8% 8↑ - 6↓ -0.1% 7↑ - 7↓ -1.7% 9↑ - 5↓ 4.5% 8↑ - 6↓
SPRING 1.6% 7↑ - 7↓ 2.1% 7↑ - 7↓ 1.8% 9↑ - 5↓ -6.8% 7↑ - 7↓ -0.4% 5↑ - 9↓ 3.2% 7↑ - 7↓
SUMMER 1.3% 9↑ - 5↓ 1.3% 8↑ - 6↓ -5.7% 3↑ - 11↓ 0.1% 9↑ - 5↓ -3.6% 6↑ - 8↓ 0.0% 7↑ - 7↓

Source: CurrenciesFx.com Research 2000-2013

Cross-Asset Correlations

Cross-Asset Correlations

A cross-asset correlation measures the degree to which the price of a financial instrument is affected by a change in the price of another instrument of a different asset class.

 

The globalization of the economy and the unification of the world financial markets into a common area of investment opportunities are the drivers of the increased cross-asset correlations we are witnessing the past 20 years.

Defining Correlation:

In general, a correlation between two variables expresses an average relationship that is backed with historical data. The correlation coefficient receives values between -1.0 and +1.0, and that means:

  • +1.0 is the perfect correlation reflecting identical movements / directions

  • -1.0 is the perfect negative coefficient reflecting identical opposite directions

What is a Cross-Asset Correlation?

A cross-asset correlation is a relationship between two instruments belonging in different asset classes. After the global financial crisis of 2008, there is a significant increase of cross-asset correlations between equities, Forex currencies, commodities, credit, and interest rate products.

Uncertainty Enforces the Correlation Effect

When the macro outlook changes dramatically, the financial markets tend to adjust rapidly their risk/return combinations seeking a new balance. Moreover, increased cross-asset correlations appear between Currencies, Gold, Energy prices, Credit, and Equities.

During periods of macro uncertainty, investors tend to see equities, soft commodities, energies,and corporate bonds as sources of unwanted portfolio risk. Hence, they sell simultaneously all these asset classes. The price of these asset classes moves consequently in sync. This phenomenon creates an increased relationship between macro uncertainty, volatility, and cross-market correlations. In the following chart by JP Morgan, we can see exactly how increased volatility results in high cross-market correlations.

Chart: The relation between Volatility, Alpha, and Cross-Market Correlations

During periods of macro uncertainty, investors tend to see equities, soft commodities, energies,and corporate bonds as sources of unwanted portfolio risk. Hence, they sell simultaneously all these asset classes. The price of these asset classes moves consequently in sync. This phenomenon creates an increased relationship between macro uncertainty, volatility, and cross-market correlations.

These are some basic conclusions:

  • More VOLATILITY (↑) → More Correlation (↑)

  • Less VOLATILITY (↓) → Less Correlation (↓)

  • More ALPHA (↑) →Less Correlation (↓)

  • Less ALPHA (↓) → More Correlation (↑)

Read more: Cross-Asset Correlations

USDJPY Forex Pair

 Trading USDJPY

USDJPY is a both volatile and liquid Forex pair when measured in a Daily or Intraday basis. USDJPY is offered by Forex Brokers in very tight spreads. After the pair EURUSD, USDJPY is offered usually at the best terms regarding trading cost.

 

EUROUSD STATISTICS

USDJPY STATISTICS

USDJPY Exchange Rate: Since the year 2000, the US Dollar has strongly depreciated against the Japanese Yen.

USDJPY Volatility: Average daily volatility measured at 1.086% and intraday volatility measured at 1.085%

USDJPY Average Volume: Average daily volume at about 577 billion USD.

Read more: USDJPY Forex Pair
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