I have heard numerous times over the last few years that tick count on forex is about 90% as accurate as volume. This is really important for those that trade spot forex and, as most of you know, I love spot forex for my long-term trades. However, I don’t agree that tick count is as accurate. So, I set about comparing the two using the Euro Currency Future contract with the EURUSD contracts.
Now, some may say that it is not an accurate comparison. Well, if you look at a Euro chart with a EURUSD chart (same time frame, same day) you see the same price bar formation. If I can see the same price bar formation then I should be able to compare the two.
Tick Count on Forex versus Currency Futures
For example, can you tell which of the charts below is the Euro Currency Future? The currency futures uses actual volume versus the EURUSD which uses tick count on forex.
If you guessed Figure 1 as the Euro Currency Future, you would be correct. However, notice that you see the same high and low patterns, as well as congestion areas. Therefore, I am pretty confident that we can compare the Euro volume to the EURUSD tick volume to see what the results are.
Before we start comparing, let me explain one of the biggest differences between the two — liquidity. It is a well known fact, that the spot forex market has unlimited liquidity. I have clients that cannot trade the Euro Currency Future because when compared to the EURUSD, it has less liquidity for the big traders. (When I say big traders, I mean traders that are trading 200 contracts at a time.)
Now let’s look at the comparisons on volume versus tick count on forex between these instruments. Let’s start with the Euro currency future contract for 2012. I have totaled the volume per 60 minute intervals.
According to this chart, for the year 2012, during the 11am ET hour, there were a total of 3,171,377 contracts traded. Now, if we compare this with the EURUSD, knowing tha there is more “liquidity” in the EURUSD, I would expect there to be more than 3,171,377 contracts traded.
WOW! There were over two million more contracts traded on the Euro Currency Future. But wait, the EURUSD is suppose to have more contracts traded than the Euro Currency Future. Maybe it is just TradeStation data. Let’s compare the data for the EURUSD using data from FXCM.
Well, now there is about 2 1/2 million more contracts traded on the Euro Currency Future than the EURUSD. Although you may say, “Well, there may be more people going over to the Euro Currency Future now.” you would be incorrect. I have analyzed the data all the way back to 2007 and it is consistently the same. The issue is that there is no central exchange for the Spot Forex market and, therefore, there is no accurate count of the number of contracts being bought or sold. Using tick count as volume on Spot Forex is not as accurate as true volume and is limited by the broker thru which you are receiving your data. This is why there is such a huge discrepancy.
I am still processing all the years of data, however, I will be writing more on this topic as traders need to understand the differences between the two. Since Multicharts is now incorporating Cumulative Delta into their platform, we may be able to use the Cumulative Delta charting option on spot forex to identify exactly how accurate the volume based on tick count is when compared to the actual order flow analysis (Cumulative Delta).