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This is an email I got from Joe Ross where he compares Forex vs. Futures trading. You probably heard that the Forex market is the most liquid market in the world. But did you know that most of the forex transactions are made between banks and not accessible for retail forex traders like you and me? Here is what Joe Ross wrote:

I believe it is generally agreed that FXCM is the largest retail forex broker in the world. At least, that is what they claim. If this is true, it means all other forex brokers have less volume than does FXCM.

It is generally claimed by forex brokers that the forex market is the most liquid market in the world, and I have no doubt this is true. Around 2 trillion dollars are traded in forex during a 24-hour period. The question is, how much of that 2 trillion dollars is available via retail forex? The answer is precious little, as you will soon see. It is a statistical fact that around 90% of forex trading is traded against the U.S. dollar, and the most liquid retail forex trading is found in EUR/USD, i.e. the euro vs the U.S. dollar. What is not generally known is that the majority of the money traded in all of forex trading as well as in EUR/USD is traded directly between banks in what is known as the Interbank. This volume is not available to retail forex traders. To prove that this is so, I decided to do a direct comparison of hourly volume traded at FXCM in EUR/USD vs the volume traded in the futures contract known as Euro fx traded at the Chicago Mercantile Exchange as Euro Globex.

Because it is said that Tuesdays are a good day to trade EUR/USD, I chose a Tuesday. You will have to take my word for it that the results are essentially the same for every other day of the week. I chose Tuesday, December 4, 2007. There were no holidays in the U.S. on that day, nor were there any anywhere else in the world as far as I could determine. Here are the 60-minute volume results taken every two hours, supported by the charts you see below:

CONTRACT VOLUME
December 4, 2007

I also looked for a day when there was a great deal of price movement. October 22, 2007 was such a day. Total volume at FXCM was 18,019 contracts. Total volume in Euro Globex was 168,216 contracts, more than 9 times the volume at FXCM.

Now you know! What about the other brokers who are not as big as FXCM? Not counting sponsored links using Google search, there are 296,000 listings for forex brokers. I know that many of those listings are duplicates and triplicates, but they are having to share whatever contract volume there is, which presumably gives each one less than the volume at FXCM. Looking further at brokers who have had traders give them a review, you will find that there are over 200 brokers large enough to have had someone rate them. In light of this information, how can anyone believe that there is more liquidity in retail forex than there is in trading currency futures?