Forex Volume Slows Everywhere But US

forex volume Kathy Lien Uncategorized

This morning, central banks around the world released their latest reports on foreign exchange turnover. These numbers are for October 2011. FX trading volume declined in every part of the world except for the U.S., where it rose to a fresh record high in October. The anomaly in the U.S. may have to do with the improvement in risk appetite in October -- stocks rose strongly, which could have made US investors more willing to take on risk. In other parts of the world, trading volumes in the Swiss Franc and Japanese Yen could have suffered from central bank intervention, which capped volatility in those pairs.

London Link to Report
-- Average daily reported UK foreign exchange turnover was $1,972 billion in April 2011, 3% lower than in October 2010, and 17% higher than a year earlier. This was off the highest level of turnover recorded since the survey began in April.
-- The decrease in turnover was driven by a 9% fall in FX swaps activity. Spot turnover rose
2% to a record survey higher.

New York Link to Report
- Daily FX market turnover rose to a record $977 billion for the Oct 2011 reporting period, up 20% from prior year

Singapore Link to Report

-- Average daily reported ‘traditional’1 foreign exchange turnover was US$308bn, a 1.1% decrease compared to April 2011.

-- Average daily reported turnover in OTC foreign exchange derivatives2 was US$46bn, a 2.1% decrease compared to April 2011

Canada Link to Report

-- On an average daily basis, total turnover declined by 14.4% from US$ 61.2 billion in April 2011
to US$ 52.4 billion in October. This was the first decline in traditional foreign exchange
turnover since April 2009

Australia Link to Report

-- Total average daily turnover in all OTC foreign exchange instruments in the Australian market was US$167.9 billion in October 2011. This was a decline of 23 per cent from April 2011, and a decline of 14 per cent over the year.

-- Average daily turnover in traditional OTC foreign exchange instruments (spot, outright forwards and foreign exchange swaps) in the Australian market was US$161.2 billion in October 2011. This was a decline of 23 per cent from April 2011, and a decline of 14 per cent over the year.

April 2011 Forex Volume Data – Trading Rises in London

forex blog forex volume Kathy Lien

I’m a few days late because the market has been keeping me super busy but here’s the latest FX Volume Data and Charts from the main central banks

London Link to Report
-- Average daily reported UK foreign exchange turnover was $2,191 billion in April 2011, 23% higher than in October 2010, and 30% higher than a year earlier. This was the highest level of turnover recorded since the survey began.
-- The increase in turnover was driven by rises in spot (+32%) and FX swaps (+19%) turnover.

New York Link to Report
- Daily FX market turnover dropped 5.3% to $396B from April 2010

Tokyo Link to Report

-- In this period, while the Eastern Japan Great Earthquake had a serious impact on the Tokyo foreign exchange market, retail margin trading, electronic trading, and emerging currency trading remained active.

Singapore Link to Report

-- Average daily reported ‘traditional’ foreign exchange turnover was US$314bn, a 12.9% increase compared to October 2010.

Canada Link to Report

-- Compared with the survey one year ago, the average daily turnover of traditional foreign exchange products increased by 7.4% from US$ 57.0 billion in April 2010 to US$ 61.2 billion in April 2011. However, traditional foreign exchange turnover remains lower than during the October 2007 to October 2008 period.

Australia Link to Report

-- Average daily turnover in traditional OTC foreign exchange instruments (spot, outright forwards and foreign exchange swaps) in the Australian market was US$210.0 billion in April 2011. This was 13 per cent higher from October 2010 and over the year.

BIS Explains FX Volume Growth

forex volume Kathy Lien

Back in September, the Bank of International Settlements announced that daily FX volume reached $4 trillion, a 20% growth from 2007. At the time, they said that the increase in turnover was due largely to the activity of “other financial institutions” which basically meant everyone except for banks dealing in FX and importers/exports (non-financial customers). This category includes everyone from non-reporting banks to hedge funds, central banks, insurance companies, mutual funds, and retail FX brokers. However earlier this week, the BIS released an in depth report explaining what is behind the increase in FX volume over the past 3 years. It is a thorough report that is word a read (BIS report -- Pages 27-40) and here’s a summary of their “official” findings.

The increase in growth is due to:

1. Greater Activity by High Frequency Traders

-- EBS Spot Ai was a key turning point for the algorithmic trading market
-- Introduced in 2005, it gave major institutions access to the inter-dealer market
-- Between 2007 and 2010, its share of trading on EBS grew from 28 to 45%
-- CME also launched an algo platform in 2002 and over the past 3 years, the turnover in FX volume has more than doubled
-- High Freq trading is estimated to account for 25% of spot FX activity

2. More Trading by Smaller Banks

-- Greenwich Associates estimates that more than 50% of total FX volume is conducted electronically
-- The cost effectiveness and increased competition have lowered transaction costs, giving smaller banks and retail investors better access to the market which has in turn increased turnover

3. Emergence of Retail Investors (Pat yourself of the back)

-- BIS estimates that retail investors accounts for 8-10% of spot FX volume ($125-$150B a day)
-- In Japan, retail investors represent 30% or more of spot trading volume

Also, the financial crisis occurred between the 2 survey periods which means that some of the increase in trading volume can also be attributed to the use of spot FX to hedge risk exposures in other markets. For example, it was quite popular to hedge the decline in U.S. stocks with long Japanese Yen exposure.

Forex Trading Volume Officially Hits $4 Trillion

bis forex volume forex volume Kathy Lien

This morning the Bank of International Settlements released its Triennial FX survey which is basically the market’s benchmark for forex volume and turnover. To no one’s surprise, volume has surged over the past 3 years. Between April 2007 and April 2010, global foreign exchange market increased by 20 percent from $3.3 trillion to $4.0 trillion, which is now the golden number for forex volume.

Reading between the lines, we can tell that a large part of the increase in volume is due to the trading activities of RETAIL traders! (Yes, we are making a BIG difference) According to the BIS report, 48% of the growth was in spot transactions which represents 37% of the total turnover (or total FX flow). Although swaps became more popular to trade, all other related foreign exchange instruments saw only a 7 percent increase in volume. The report also says that “the higher global foreign exchange market turnover is associated with the increased trading activity of “other financial institutions” (think retail forex brokers). Turnover in this category rose 42% and for the first time ever, reporting dealers (banks) did more transactions with “other financial institutions” than with other banks.

Having just come back from Singapore where shelves and shelves were filled with forex trading books, I am in no way surprised that the BIS has confirmed the popularity of forex trading.

The foreign exchange market also became more global with cross-border transactions representing 65% of trading activity in April 2010, while local transactions account for 35%.

U.S. Dollar Becoming Less Important

Back in 2001, the U.S. dollar was involved in 90% of all currency transactions and as of April 2010, this fell to 84.9%. The decline in trading of dollars has benefited the euro, which gained 2 percentage points in market share since the last survey and accounts for 39% of all transactions. “The Japanese yen also increased its market share by 2 percentage points to 19%, a recovery relative to the 2007 survey but still below its peak of 23.5% reached in 2001. The pound sterling gave up most of its post-euro gains, with its share returning to the immediate post-euro level of around 13%. Trading in the Swiss franc also declined marginally to 6.4% from 6.8% in April 2007. The Australian and Canadian dollars both increased their share by around 1 percentage point, to 7.6% and 5.3%, respectively.”

The percentage share of the US dollar has continued its slow decline witnessed since the April 2001 survey, while the euro and the Japanese yen gained relative to April 2007. Among the 10 most actively traded currencies, the Australian and Canadian dollars both increased market share, while the pound sterling and the Swiss franc lost ground. The market share of emerging market currencies increased, with the biggest gains for the Turkish lira and the Korean won.”

Of the major currency pairs, trading of EUR/USD and USD/JPY have increased while trading of the GBP/USD has decreased.

The U.K. is still the largest trading center for forex but the relative ranking of foreign exchange trading centres has changed slightly from the previous survey. The United Kingdom continued to be the most active location with a share of 46% of worldwide trading, followed by the United States with a share of 24%, slightly down from 2007. Outside these two centres, trading took place primarily in France (7%) and Japan (3%), both slightly down from 2007, Singapore (3%) and Switzerland (3%), both slightly up. Turnover in Germany almost halved to less than 2% in April 2010 compared with 2007. Banks located in the United Kingdom accounted for 36.7%, against 34.6% in 2007, of all foreign exchange market turnover, followed by the United States (18%), Japan (6%), Singapore (5%), Switzerland (5%), Hong Kong SAR (5%) and Australia (4%).

Lower Forex Margin Should Temper Volume Increases in the Future

However the pace of growth will most likely be moderated by the reduction in leverage announced in the U.S. and Japan. Last month, Japan reduced leverage to 50:1 and plans to bring this down even further to 25:1 next year. U.S. regulators announced earlier this week that leverage will be capped at to 50:1 for major currencies and 20:1 for all other currencies. This will go into effect on October 18. Lower leverage will make forex trading less attractive to some participants but 50:1 is still very generous leverage by all counts and so it will not be catastrophic for the retail forex industry. We should still see retail trading contribute positively to forex volume, but probably not by the double digit levels seen in past years.

Forex Trading Volume on the Rise!

forex volume Kathy Lien

Forex trading volume has finally recovered after the wave of deleveraging caused the market to contract back in April 2009. Earlier this week central banks from around the world released their semi-annual foreign exchange surveys and according to the reports, the average daily trading volume between April and October of 2009 increased significantly.

In London, total daily foreign exchange volume rose 14 percent to $1,549 billion and in NY the average volume increased 28 percent to $675 billion.

These are still below 2008 levels but indicate that demand for foreign exchange trading and hedging is beginning to recover.

The EUR/USD remains the most actively traded currency pair by far followed by the GBP/USD and USD/JPY.

London (link to report)

-- Britain is the world’s biggest FX trading hub with over a third of global turnover.
-- Average daily turnover in traditional forex products rose 13% to $1,430B, up 13% from Oct 2009
-- Total forex trading volume rose 14% to $1,549B
-- The most heavily traded currency pair was euro/dollar, which accounted for 32.6% of total turnover.

uk forex trading volume

uk forex trading volume

uk forex trading volume breakdown

uk forex trading volume breakdown

New York (link to report)
Daily FX market turnover rose 28.1% to $675B

ny forex trading volume

ny forex trading volume

Click more for Singapore and Canadian forex trading volume

Tokyo – Data not updated

Singapore (link to report)
Average daily reported ‘traditional’ foreign exchange turnover was US$231bn, a 13% increase compared to April 2009

singapore forex trading volume

singapore forex trading volume

Canada (link to report)
The monthly turnover in October of traditional foreign exchange products (defined as spot transactions, outright forwards and foreign exchange swaps) totaled US$ 1.26 trillion. On an average daily basis, total turnover increased by 6.2% from US$ 56.4 billion in April 2009 to
US$ 59.9 billion in October.

FX Market is Slowing! Forex Trading Volume Shrinks

forex blog forex volume Kathy Lien

Unfortunately the forex market has not escape the impact of global deleveraging and the failure of Lehman Brothers in 2008. Central banks from around the world have released their semi-annual foreign exchange surveys and based upon all of the reports, forex trading volume decreased significantly between April 2008 and April 2009. Investors large and small have reduced risk with carry trades unwound aggressively. The lack of participation may explain why the major currency pairs have been stuck in a range since the beginning of May. In New York for example, forex spot trading volume fell to the lowest level in more than 3 years.

London remains the most active forex trading center followed by NY and Tokyo. The EUR/USD is still the most actively traded currency pair by far.

Here are some stats (all of data is in billions of U.S. dollars):

London (link to report)

-- Britain is the world’s biggest FX trading hub with over a third of global turnover.
-- Average daily turnover in forex products fell 20% since October 2008 to $1,356B, down 25% from April 2008
-- Majority of decline was attributed to less activity in spot FX which fell 28%
-- The most heavily traded currency pair was euro/dollar, which accounted for 32% of total turnover.

New York (link to report)

-- Daily FX market turnover fell 26.3% to $527B, the lowest level since October 2005
-- Spot transactions dropped 25.2%, Option trades fell 48.4%

Most Heavily Traded Currencies (Spot Transactions) in NY

Tokyo (link to report)

-- Daily FX Market Turnover Fell 16 percent

Singapore (link to report)

-- Daily Foreign Exchange turnover down 21 percent compared to October 2008

Canada (link to report)

-- Daily Foreign Exchange turnover down 11.3 percent, lowest volume since April 2007