ForexSpirit

In most tradable markets there are two pieces of fundamental information available at any given moment: price and volume.

Volume information is available for these markets due to the fact that there is a central exchange where all transactions are processed. There is thus one central point through which all trades flow. This allows for volume to be correctly calculated, as the size of all orders during a given time period can be easily tracked and summated.

The spot forex market is different. There is no one central exchange through which all trades are processed. This makes it currently impossible to know the exact volume during any given time period accurately. A bank or broker might know the volume that they personally transacted but they do not know the total volume processed by the whole market.

If you previously traded stocks before starting to trade currencies then you might have relied heavily on volume as part of your trading decision process.

With no way to gather the total volume traded in the spot currency market is there any way to at least approximate this information?

Tick Volume
The least accurate way to infer transaction volume is by using an indicator found in many charting packages called tick volume. If your charting package has just a Volume indicator, then it is most likely tick volume in disguise.

Tick volume just counts the number of times that price moved during that time period. Every individual tick change is recorded and the total number of tick changes is presented as an approximation of volume. Of course, the number of times that price changed has absolutely zero correlation to the actual total number of trades and their size. For this reason, using tick volume as any sort of proxy for real transaction volume is absolutely worthless in my eyes.

The only usefulness I can see for tick volume is in assertaining volatility. A high tick volume reading will likely equate to high volatility. The actual tick volume at any given time is all but meaningless on its own. You must compare the tick volume reading to prior time periods. If the tick volume is going up then there is a good chance that more volatility is creeping into the market.

Futures
A much better way to gauge forex volume is by finding a large enough sample set of trades from which you can extrapolate the overall market volume. The larger your sample set then the smaller your margin of error. (This where all that maths you learned in school comes in useful!)

If your broker offers their trading volume (or you are able to acquire this information from one of the larger banks) then you probably have volume information that is statistically significant enough to be useful as a proxy for the whole market. I am not aware of any retail forex broker that offers this sort of information.

Another source of volume information that is of statistical relevant size can be sourced in the currency futures markets.

The Chicago Mercantile Exchange is the largest currency futures exchange. If you have a futures brokerage account or otherwise have access to currency futures charts then you should be able to bring up volume information for the futures currency pair of your choice.

Another indicator often found on most futures instruments that I find to be useful in conjunction with volume is open interest. Open interest is the total number of open positions that exist for that instrument at a particular point in time.

Open interest can be very useful as a way of reading sentiment. When open interest reaches a new relative high it can be a strong indicator that the current trend might be running out of steam.

The open position summary and historical position summary information offered by Oanda can be another useful barometer of this sort of sentiment. Since Oanda is one of the biggest retail forex brokers around the data mined from their customer base and offered through the various tools in their FXLabs can be a useful way to take the pulse of the retail forex marketplace.