I hear this time and time again.

‘Why would you be analysing volume? It doesn’t matter in FX.’

This is just completely wrong for most cases.

First let’s get some things out of the way – trades volume and tick volume (which we will look at) are two slightly different things.

Traded volume shows actual order size in any given price spread period.

Tick volume shows the amount of different price movements in a given price spread – or how many times price moves up or down.

It’s been noted many times that FX futures traders have been at a disadvantage to spot traders – one is exchange based and you face centralised volumes and the other as explained above isn’t, its over the counter.

When looking over an hourly time-period, with data comparisons of traded volume in futures markets and tick volume from EBS inputted, you can input variables into a Pearson product moment equation to solve R and find a correlation between datasets.

It was found that (on an hourly basis), USDJPY’s tick volume vs traded correlation volume is 0.918, EURUSD 0.936, GBPUSD 0.979 and EURCHF 0.94.

These correlations are pretty high when you consider that for years, people have said that you can’t derive valid conclusions as to volume on the OTC market!

You do have to assume a few things though – you’re not trading via a market maker, and that the correlation can change.

But in the end, I see absolutely no reason as to why you can’t use volume when trading FX, and actually, I think it’s under-utilised.