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I Wonder About The Forex Market.

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I often wonder about the forex market and what actually goes on, and who knows what goes on, it is an estimated $4 trillion that goes through the forex market on a daily basis, and you can only wonder where all this money comes from. The US economy turns over $14 trillion a year, but the forex market turns over more than that in less than a week, so where does all the money come from? The yearly value of the total world economy is estimated at around $80 trillion dollars, that’s still only 20 days of the forex market’s turnover, if we take 12 months of around 20 days of trading on average every month that’s 240 days of turning over $4 trillion which is near enough one thousand trillion dollars which is a quadrillion dollars. For the purpose of clarity I’ll illustrate that with a common factor, yearly world economic turnover approximately $80 trillion, forex market yearly turnover approximately $1,000 trillion, over 10 times as much.

So Does The Forex Market Make Sense?

As a forex trader you don’t really need to make sense of the actual markets, what you need is a strategy that will make you a profit, but I can’t help thinking about it, where does all this money come from? I think on the whole there are actually more questions than answers. First of all there is leverage of course, so when speculators trade they use leverage meaning that they are trading much more than the value of their trading, in practice they will probably not use more than 10:1 leverage. So you might think that at 10:1 leverage the total value of the forex market is 10 times more than the total value of the world economy, but if this was the case it would equate to the whole of the world’s economy being speculated, or does it, who knows? It’s a very complicated environment with many different participants, and I defy anyone that say that they can give a definitive answer. There is no central registry, we will never know in any real detail who’s trading, we might have a couple of guys wanting to go on holiday living on the border of two countries, so instead of going to an official currency exchanger, they could simply make an agreement between themselves to exchange a sum of money. And why not, they know the price, it is easy to obtain the exact exchange rate that is fair and by doing so avoid paying commission.

Who Makes A Profit And How Much?

Again the answer to this question is nobody really knows, there’s a number of figures been quoted, one being that 95% of retail forex traders fail, but many other numbers are quoted like 90% and 85% and sometimes even 50%. At best it’s not a hard and fast rule since you have to take into account if it has been a real effort by traders or not, you can’t include someone that has spent a week having a look at what forex is, took a punt and lost £5k in another week. Do the banks make a profit? They certainly trade a lot, and if they do you have to ask where the profit comes from, there is a big gap between the world’s total GDP turnover and what is traded on the forex. From time to time there is a big almighty economic crash, and as we have seen recently after the crash of 2007 the banks seem to be making very rude profits while the rest of us aren’t seeing any economic recovery at all. It seems that the hard working public is really paying for all the extravagances and recklessness of the banks. A few people do make a profit and that’s the purveyors of mentoring and forex trading systems, and you have to question if these are genuine since why would you go to the bother of teaching others rather than spending the day on the golf courses? Forex is a weird and wonderful marketplace and there will always be more questions than answers, and I think it’s best not to think about all that goes on, otherwise it’ll just freak you out and confuse you as a trader. But one thing is for sure there will probably be more losers than winners one way or another.

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