When trading foreign currency trading volume can be critical to liquidity, accuracy of technical analysis and profits. Recently released trading figures from the London Forex market provide insights into when trading volume is high or low. Foreign currency trading volume peaked in the fall of 2011 as concerns about the Euro Zone debt crisis drove trading. According to the recently released report trading last fall was only surpassed by foreign currency trading volume in April of 2011. The three most commonly traded currency pairs are the Euro versus the dollar, the US dollar versus the British Pound, and the US dollar versus the Australian dollar, in that order. Besides the Euro Zone debt crisis the tsunami in Japan led to a peak in trading. That was in April of 2011 when G7 economic ministers threatened to intervene in currency markets to stop the rise of Japan’s currency due to massive Yen repatriation. Other factors include companies hedging risk in foreign trade and investors fleeing to safe havens in time of economic risk. And, let us not forget that when central banks such as those of Japan and Switzerland choose to keep their currencies from rising too rapidly then can intervene in currency markets and markedly increase volume.
For the average currency trader anticipating changes in foreign currency trading volume allows him to trade the most active, and hopefully most profitable, currency. High trading volume implies interest and interest comes from volatility and potential profits. Traders use both fundamental and technical analysis to choose their trades but often time they use foreign currency trading volume as a guide to which currency they ought to be trading that day, week, or month. Whatever might be the Forex response to Persian Gulf tension traders can find profits as the dollar, Euro, Pound, and other currencies adjust to the threat of new economic realities.
However, reading figures for Forex trading volume after the fact does not help a trader gain profits. Rather the trader must watch the news, follow economic policy of more than one nation, central bank statements, and world events in general for assistance in predicting Forex trends. The backbone of the foreign currency trading system is comprised of companies and nations which must buy and sell internationally. The Forex market was set up to allow for foreign trade. Currency speculators enter this worldwide market in search of profits. Their presence helps improve liquidity in markets and also serves to increase foreign currency trading volume. But the mere presence of speculators in currency markets does not necessarily lead to peaks and valleys in foreign currency trading volume. It is world and national events, adjustments in national, economic, and monetary policy that drives comparative currency values. Remember that no one trades one currency. All currencies are traded in pairs and it is the factors of that drive each currency and how these factors compare, currency to currency, that drive the price of one currency as denominated in another. Traders are wise to look for a peak in trading volume as a guide to where to trade. Then the trader still needs to do his homework in order to buy or sell in a timely manner.
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