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Average daily trading volume in the global foreign-exchange markets (forex or FX markets) was $3.98 trillion in 2010, according to the Swiss-based Bank for International Settlements, and estimates put current totals well above $4 trillion.
Daily forex trading dwarfs volumes for all other leading investment vehicles - by a huge margin. Bloomberg estimates average daily trading volume for all U.S. Treasury securities at roughly $300 billion. Stocks barely register at all in comparison; average daily volume on the New York Stock Exchange (NYSE) is just around $25 billion.
Even if you combined the volume of all the world's stock exchanges, it still wouldn't equal the value of daily forex trades.
One reason the forex market can be so huge is that it isn't confined to a physical location, nor does it have a central exchange. Unlike the NYSE, which has a trading floor for stocks and bonds as well as a computerized trading network, the forex market is strictly an "interbank" or "over-the-counter" enterprise.
That means banks and other large currency traders can either deal directly with one another, or they can match their foreign-exchange needs via one of several Electronic Brokering Services (EBS) such as the Society for World-Wide Interbank Financial Telecommunication (SWIFT).
The forex markets also operate 24 hours a day, five and a half days a week - shutting down only on Saturday and early Sunday.
Given the huge volumes, the bulk of currency trading is conducted by banks, Wall Street-type institutions, governments and other truly major players. However, forex markets are structured to allow fairly easy access for individual traders.
This means there are trillions of dollars trading each day that you should be a part of - and here's how.
We just didn't see it in the markets until a few weeks ago.
But if you look back, you can tell central bankers were panicking because they kept intervening to manipulate their stock or currency markets.
Here's a quick play-by-play of those panic attacks and the real messages behind them:
- March 17 - Central bankers in the United States, the United Kingdom, Canada and the Eurozone all join forces with Japan to orchestrate a "coordinated intervention" to drag down the Japanese yen's value.
Translation: "Emergency! We have to do something about that "strong yen" or else Japan's economy is doomed."
- Aug. 3 - The Swiss National Bank unexpectedly cut interest rates to "as close to zero as possible." Swiss bankers said they would increase the supply of francs to money markets to curb their "massively overvalued" currency.
Translation: "This "strong franc' is killing us. Before long, no one will be able to afford our chocolates and fancy watches. We've got to do something. Let's try shooting this "final bullet' in our gun and see if that works." (And, unfortunately for Switzerland, it didn't.)
- Aug. 4 - The Bank of Japan (BOJ) intervenes once again to push down the strong yen's value by selling yen and buying dollars.
Translation: "Ok, now we're desperate. We've got to see this yen turn around or we're toast!"
- Aug. 8 - The European Central Bank (ECB) buys Italian and Spanish bonds.
Translation: "We need to throw Italy and Spain a bone, even though we don't have enough firepower to bail out Italy like we bailed out Greece. But we'll put on our best poker face and try."
- Aug. 9: - The U.S. Federal Reserve announced it would keep interest rates low through mid-2013.
Translation: "Um, well we have to do something -- let's announce we're keeping rates low. We were going to do that anyway."
- Aug. 26: - At the annual Jackson Hole central bankers' retreat, Bernanke announced no new measures, saying: "Although important problems certainly exist, the growth fundamentals of the U.S. do not appear to have been permanently altered by the shocks of the past four years." He also promised to make the Fed meeting longer next month to address other concerns.
Translation: "Well, we've tried everything else, let's say everything is fine to calm the markets down! Then we can always dive into QE 3 next month or the month after if things get really bad!"
Nothing Has WorkedDid any of these emergency moves actually work? Did central bankers manage to stop volatility in the markets?
In fact, they made it worse. Investors have finally sensed panic from the guys in charge. That's why so many stock and currency traders keep hitting the sell button and dumping all their holdings.