I want to know if the $5.3 trillion that is traded on average every day in the Forex market is normalized for leverage. Or is that the volume with leverage? Also, any idea what the average leverage used by retail traders would be.
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A very similar question was asked, and answered, three years ago.
Here was my answer to the question back then.
Then, I was taken to school, so to speak, by rhodytrader –
For you newbies here, anything you read in this forum by Dr. John Forman (a.k.a. rhodytrader)
you can take straight to the bank – the guy knows what he’s talking about.
I’m sure that Dr. Forman has that info. I’ll get it (from him), and post it here later.
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Here’s more info regarding your first question –
The Bank for International Settlements (BIS) reported in their 2016 Triennial Central Bank Survey that 33% of total worldwide foreign exchange turnover (volume) was spot forex.
Swaps, forwards, and options made up the other 67%. See the right-hand pie-chart, below.
Spot forex turnover represents cash transactions, which are not leveraged.
As Dr. Forman pointed out in the post linked to previously, swaps, forwards, and options, on the other hand – although not leveraged turnover in the usual sense – are nevertheless not cash transactions in the usual sense, either. So, make of that what you will.
I’m sure the answer to your question has not turned out to be as simple and straight-forward as you had hoped.
Just to put our little corner of the forex market into perspective, spot forex (institutional plus retail) is 33% of total foreign exchange turnover. About 88% of spot forex is institutional, and only about 12% is retail. In other words, our little retail forex playground is less than 4% of the total $5.3 trillion market.
A note regarding the data –
As of this time, the dollar-amounts and percentages mentioned above are 3 years old. New data will be gathered by the BIS next month (April 2019), and will be reported in the 2019 Triennial Central Bank Survey, to be released in preliminary form in September 2019, and in final form in December 2019.
As for your second question, the one about “average” leverage –
Dr. Forman surveyed thousands of retail forex traders as part of the research for his doctoral thesis, and included the following table in his thesis.
I interpret his data this way –
The median figure suggests that 50% of retail traders reported using leverage of 4.77:1 or less, and 50% reported using leverage of 4.77:1 or greater.
The mean (average) figure suggests that the total notional value of all the trades made by all the survey participants, divided by the total of the account balances of all the participants, equaled 12.81, indicating mean (average) leverage of 12.81:1 for the participants as a group.
From this, I would infer that the answer to your question is –
typical retail spot forex leverage varies from about 5:1 to about 13:1.
A statistician might interpret the data differently.
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I just created my account yesterday and posted a question I though would take days/weeks to get an answer for. I’m blown away by the quick response and quality content. Thank you!
A couple of minor points Clint.
First, I did not survey anyone. My data came from the since closed down Currensee platform - specifically the trades captured therein (about 4 million of them). So it’s actual data as opposed to something user-reported.
Second, it’s not technically correct to say 5:1 to 13:1 is the typical leverage range as that really represents only 25% of the observations. The same number are between 1:1 (or so) and 5:1. Similarly, it’s also 25% below 1:1 and 25% above 13:1.
I think the safe thing to say, though, is that traders don’t use nearly as much leverage as many seem to believe. The vast majority are not pushing anywhere close to their leverage limits.
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The very first class of pipsology has the answer to your question. Read it carefully.
Thank you very much. Interesting collection of data. My ultimate curiosity was how much actual volume there is after normalizing for average leverage. So, 4% of $5T daily volume assumed to be retail would be $200b. Now, could we normailze that based on an average leverage and get an actual volume of capital in brokerage accounts being moved. Divide $200b by whatever leverage is determined to be common for the majority of the retail volume. I would think that the majority of the retail volume would be made up of larger accounts on smaller leverage. But, maybe the majority could be smaller accounts on higher leverage assuming they are the most active daily.
Yeah, you were lucky.
Normally, we put newbies through some serious hazing, and – only after they survive that – we award them their Secret Decoder Ring, and allow them to ask their first question. 
Hello, John
I’m glad you’ve joined our discussion.
The OP has asked this question –
How would you answer his question?
The answer was actually included in your initial reply. In the table you included from my thesis the mean shows as 12.81. That’s an average for at least the traders in my data sample. Unfortunately, I haven’t seen figures to know if that’s really the overall average, but my guess is it’s probably not far off.