Currencies - Relative Liquidity

We break down the concept of relative liquidity in currency markets, explaining which individual currencies trade the highest volume and identifying specific currency pairs investors must understand. Unlike equities and commodities, most currencies trade on over-the-counter (OTC) markets, which makes tracking volume in real time more difficult. Still, data available from the Bank of International Settlements every three years establishes a handful of currencies critical to international trade. We also note that the most recent data show the U.S. dollar is still the most important currency in the global economy. Finally we discuss currency indexes and measures of volatility. And we shine a light on what can be gleaned from positioning data in currency futures markets, though those volumes are dwarfed by OTC markets.