What is market volume? What is the best time to trade?

What is market volume?

Financial markets is a trading place with many participants both individuals and Institutions. Some of them buy assets, others sell them; movement of funds never stops. A change to the number of assets in the market makes up a trading volume or a market volume. However, it is difficult to calculate market volume at Forex. 

Why does a trader need to know market volume?

Large investments into a particular asset can unbalance the ratio between demand and supply. As it is expected that after purchasing large amount of currency, an investor will sell it later, which means that the demand on this currency will outpace the supply. It means that information on the market volume will help a trader to follow a trend set by the large investors, as they usually have strong impact on changes to the currency price. 

Why is it difficult to calculate the volume of Forex market?

Currency market does not have a specific place of location. It is a decentralized market.

You can trade everywhere and at any time, as Forex market never closes. No one counts exact volume of the deals conducted in the market. If it is so, then a question arises how can a trader use the data, which accuracy is questionable? The fact is that a trader needs to know only changes in the volume and what kind of change it is; accurate figure of the trading volume is of no importance for trading. So, a trader can use available data on trading volumes of the futures market, or tick volume.   

How can a trader find out the volume of the futures market?

First of all, for those, who does not know much about the futures, we will a definition of futures contracts. A Future is a contract to buy or sell an asset in the market. Futures contract specifies the price of the asset, volume of the deal and the date when the deal will be performed in future. Forex traders are interested on the futures contracts for the currency pairs’. As we know, they are traded at Chicago Mercantile exchange. Based on the information from this Exchange, we will be able to predict situation in the Forex currency market.  This data is also useful for choosing the best entry or exit points.

What is a tick volume?

In cases when you cannot obtain information on trading volume, you can use information about tick volume.

Tick volume measures the number of times the price ticks up and down, or we can say that tick volume measures the volume of ticks during a certain time period.

Tick volume does not measure the volume of  trades, or the number of trades, but it gives a chance to track the results of these deals- the number of price fluctuations. In other words, if the value of the price changes, it will mean that trading operations for large amounts have been conducted and this is the information, which can be helpful for trading. Trading terminal MetaTrader 4 has a built-in tick volume indicator, which a trader can use to trade. There are plenty of other trading indicators, which a trader can download online and install in his/her terminal. You can choose one of them. In general, they are very similar.

What is the best time to trade at Forex?

You know that a trader prefer the periods of high volatility in the market. At the time when exchange price of currencies is changing is the best time to enter the market. If the price of the instrument does not actually change, there is no point to enter the market. Therefore, the best time to enter the market is the time of the highest activity of the market participants. As we said before, large investors (banks, regulators) have the greatest impact on the price fluctuation, as they make deals for large amount of money, selling or buying currency. They trade during work hours of the major world stock exchanges.Although traders trade at the Forex market and have nothing to do with exchanges, activity on stock exchanges can influence on trading at Forex.

There are four trading sessions in the world:
Asian, European, American and Australian.

Each of them has its working hours, and you can track trades conducted during these sessions with the help of special trading indicators (they can be downloaded and installed in the terminal free). 

And finally,

Of course, a trader can ignore such factor as market volume for trading; however, if he/she takes it into account, efficiency of trades will increase. It is unreasonable not to take note of the peaks of trading activity, as it can be useful for your trading.

Happy trading and good luck!

What is market volume? What is the best time to trade?

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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