Percentage of Forex that is strictly currency trading? | Forex Factory

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Percentage of Forex that is strictly currency trading?

  • #1
  • First Post: Aug 8, 2012 9:48am Aug 8, 2012 9:48am
What are your estimates as to what percentage of currency movement is solely based on "forex trading"? I.E. all price movement that is not a result of international purchase/sale of stocks/bonds/real estate/commodities.

I'm not sure where to start my research to estimate. So I will start with the lovely FF peeps
  • #2
  • Aug 8, 2012 10:54am Aug 8, 2012 10:54am
Quoting Rknigh2
What are your estimates as to what percentage of currency movement is solely based on "forex trading"? I.E. all price movement that is not a result of international purchase/sale of stocks/bonds/real estate/commodities.

I'm not sure where to start my research to estimate. So I will start with the lovely FF peeps
Maybe I do not understand your question??

Currency exchange (forex) is 100% currency exchange.
If your question is what % of the exchange is of speculative nature?.
I think no one knows. My estimate is that the % of speculative exchange is smaller then the non-speculative. All the big Banks speculate very little according to their working capital.

Probably no way of knowing ... at the end of the day, all units of currency exchanged (traded) need to be cleared at the Bank for International Settlements. No way anyone can keep track nor separate what is what.

The closest to be able to make a breakdown is by form of exchange...


Example...
The bank of settlement say that the average daily exchanges is around 4 trillion per day.

The volume of currency exchanged in regulated markets, such a currency futures,options,forwards, etc, is known ... so if you deduct that known volume from the total, we get what was exchange as spot/cash ( that is what we trade). But that still does not tell what % of the regulated part and the spot part was exchanged with speculative purposes.

In regards to price movements, all units are considered equals. Tick per tick If the units buy/sell are balanced.. price does not move ...if they become un-balance, the price change... to whatever the balance is found.
The most efficient market in the world. ... the most efficient, probably because most (spot) is not regulated )

J.
.
  • #3
  • Aug 8, 2012 1:58pm Aug 8, 2012 1:58pm
Yes, much better word haha. What percentage is speculative.

I figured that would be the closest estimate the way your described (calculating known exchange volumes versus estimated total currency volume).

It would be interesting to see if certain levels or events create a higher or lower percentage of speculative volume (essentially the purpose of my question).
  • #4
  • Aug 9, 2012 9:13am Aug 9, 2012 9:13am
Google, is always the best place to start. It says 80-90 % of the turnover purely speculative.

Quoting Rknigh2
I'm not sure where to start my research to estimate.
forget about tomorrow, just steal away into the night
  • #5
  • Aug 9, 2012 2:01pm Aug 9, 2012 2:01pm
Quoting spekitox
Google, is always the best place to start. It says 80-90 % of the turnover purely speculative.

Not sure if google is the best source for this. Perhaps not even Wikipedia has it right. We can find millions of opinions, but no one would be able to show data to back it up.

Back in 2007 or so.. when Deutsche Bank still had the Retail operation, The forex manager at the time in a meeting with us a few traders, specifically mentioned that contrary to general believe the speculative portion was very small. He was talking about the total of what DB was handling as the total exchange. DB was and still is a major player of the Forex market. He placed it at around 20% at the time.

I am sure things have chance since then, but still believe there is no way the speculative is in the 80-90%. .. 40% maybe.

But in the event that was true, The non-speculative exchange would still be the major influence in the pricing. The speculators don not have the money to hold and wait forever and can not convert their purchases into something other then to unwind the purchase. The non-speculate buyers can do infinitely because they can convert it into other things and purchase again. They do no care if the price is a pivot, an MA, psychological number, fibo or the holly indicator.. example... they would buy euros, convert into a Mercedes Benz, sell it in the States, and buy euros again if still possible to make a buck...

Sometimes, we speculative traders have this notions that the market is all about us. The fact is that if tomorrow all speculative trader, big and small, stop trading, the market would continue just the same, less volume, but volume has nothing to do with price changing. Banks and brokers would miss the spreads we are paying. but that is about it.

J.
.
  • #6
  • Aug 9, 2012 2:08pm Aug 9, 2012 2:08pm
Quoting jeuro
They do no care if the price is a pivot, an MA, psychological number, fibo or the holly indicator.. example... they would buy euros, convert into a Mercedes Benz, sell it in the States, and buy euros again if still possible to make a buck...

Sometimes, we speculative traders have this notions that the market is all about us.
Awesome, I love it haha.

If speculative trading is miniscule... Technical analysis is much more interesting to me because it paints a picture of trading patterns that the primary market mover (equities, commodities etc.) are unaware of.
  • #7
  • Aug 9, 2012 3:20pm Aug 9, 2012 3:20pm
Thanks for the insight ... I like inside facts. Anything else? Like the percentage of winning/losing retail clients?

Quoting jeuro
Back in 2007 or so.. when Deutsche Bank still had the Retail operation, The forex manager at the time in a meeting with us a few traders, specifically mentioned that contrary to general believe the speculative portion was very small. He was talking about the total of what DB was handling as the total exchange. DB was and still is a major player of the Forex market. He placed it at around 20% at the time.
.
forget about tomorrow, just steal away into the night
  • #8
  • Aug 9, 2012 4:07pm Aug 9, 2012 4:07pm
Quoting Rknigh2
What are your estimates as to what percentage of currency movement is solely based on "forex trading"? I.E. all price movement that is not a result of international purchase/sale of stocks/bonds/real estate/commodities.

I'm not sure where to start my research to estimate. So I will start with the lovely FF peeps
To get unsuspecting would be forex millionaires all excited so that they will open an account worth about $20 the word goes around that the forex market trades 3 trillion per day. In fact it is much much smaller, certainly much smaller than stock transactions.
The fact is that large commercial transactions are never seen in the market. Therefore the liquidity is a lot, lot, LOT less than what is purported by the forex marketing machine.
  • #9
  • Aug 10, 2012 12:51am Aug 10, 2012 12:51am
Quoting bstay2
These are the triennial Central Bank Survey reports from 2004, 2007, 2010.

http://www.bis.org/publ/rpfxf10t.pdf
http://www.bis.org/publ/rpfxf07t.pdf
http://www.bis.org/publ/rpfx05t.pdf
Only an extremely small fraction of the 4 trillion is available for trading.
A quick look at forex level 2 will make that clear.
  • #10
  • Edited 7:53am Aug 10, 2012 7:42am | Edited 7:53am
Quoting Mingary
Only an extremely small fraction of the 4 trillion is available for trading.
A quick look at forex level 2 will make that clear.
What do you mean Mingary?
There is no such thing as "available" amount of units of money for trading.

The 4 trillion or so that are reported as a daily average "WAS"/IS" traded in a daily base. You must realized, that every single Bank or Broker "quote" prices... but NO ONE knows how many units are available at that price in a specific millisecond. .. and no one Has a huge inventory inventory of a foreign currency. If the units offer vs units demand are un-balance, the price change... to where the balance is found. Forex market is Zero sum .... each units that someone buys, somebody need to sell it. The price is the only thing that change.

If you place an order of 10000 euros and want to pay with usd .. (buy 0.10 eur/usd) ... someone need to sell them to you. If someone does... it means they where available at that price. ..and if not at that price... maybe would be another... but once someone does, those units are part of those 4 trillion the bank of settlement reports.

It does not matter in what kind of form the exchange takes place, spot, futures, swats, options , etc. All units are equal and play part in the price changing. It is true that some big transactions are done private... But regardless of how big and private those transaction are , still sum zero. If City want to but 2 billions euros from USB ... if they agree to the transaction..regardless the price., the price in the market would not change.... because the units are balanced. In any case... that transaction would be reported and show up in the Bank of settlements stats.

J.
.
  • #11
  • Last Post: Nov 2, 2014 2:20pm Nov 2, 2014 2:20pm
That is a very important question. I'm surprised it has not received more replies. Although there is also an older thread on the same topic here http://www.forexfactory.com/showthread.php?p=2209524

In the present thread and in the older thread, there are opposite opinions - some believe that speculative currency exchange (trying to make profit from price movements) only makes up a tiny portion of global forex turnover, others believe speculative exchange makes up majority of the turnover. It seems to me that the last opinion is closer to the truth. Take look at the last BIS Quarterly Review here http://www.bis.org/publ/qtrpdf/r_qt1312.htm. You can see on page 29 that non-financial customers (corporations) only make up 9% of global forex turnover. These non-financial customers are probably the ones who mostly exchange currency for non-speculative reasons.

Why is this topic important? I think the character of the market (price movements) would be different if it were composed of mostly speculators or mostly non-speculators. I'm not quite sure how exactly that would affect the market. But I suspect economic fundamentals would be more important if non-speculators would do most of the currency exchange.
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