What we haven’t talked about much so far is volumes. The volume of business done in trades on the stock market is definitely important and may well provide important indicators – with the spot forex market, it is less so.

So how much trading is now and has been going on?
According to various estimates, the total money mass in the forex market is around 1 to 1.5 trillion US dollars per day. But – and here’s the difference – because trading is not centralized on one exchange, it’s not possible to get exact numbers here. We simply can’t know what’s going on all round the world with every inter-bank transaction as it happens.

Your trading platform will often have an option to give you ‘traded volumes’, usually shown as a histogram under the relevant chart of the currency pair – what you don’t quite know is what these figures may mean, and they will certainly mean different things depending on your software and whether you’re using a real or practice account.

Sometimes, they’re just the aggregate of what all the other demo traders are doing out there. The advice has to be, if you don’t know exactly what numbers you’re getting, don’t base any trading decisions on them.

(And note that some charting software will have a tab labelled ‘Volumes’, when what it actually meant is ‘Volume Indicators’ – different thing entirely).

COT Reports
The Commitment of Traders report (COT) for a currency is all about the big players.

And here, a big player means anyone big enough to have to report to their regulatory authority on the positions they currently hold. It’s more than theory, in practice, large traders, such as financial institutions, large corporations, hedge funds, could do serious damage to a currency simply by virtue of the strength of their holding.

Here’s a long-term COT report chart for the Euro – EUR:

Where the blue line = commercial traders, green line = large traders, red = small traders

As you’ll see, the red, small traders position line doesn’t stray far from the average. Of interest is the large non-commercial traders line in green – this is a gauge of long-term market sentiment, in that the peak building towards the end of the time-period indicates a peak in long Euro positions – at some point, reversal will occur and Euros will be sold – which means the currency will most probably weaken overall.

(Notice that the blue commercial traders plot line is mainly about hedging and so follows an inverse pattern to the large-non-commercial plot line.)

It’s always worth keeping up with the general COT positions for a given currency, especially if you are thinking in terms of longer-term investment.

Let’s move on next to have a look at trading on news releases, with 16. News Trading →