The Bank for International Settlements published its latest findings regarding the growth of foreign exchange trading on Thursday. FX swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.
It’s worth a closer look at the BIS report in order to analyze just how retail traders ‘fit in’ to the overall wider industry and to examine what are the ongoing benefits of the massive growth in FX for our clients. Major banks settle their billions of invoices by accessing the foreign exchange market on a daily basis, but how does the massive rise in foreign exchange transactions, experienced over recent years, actually affect and moreover benefit retail traders?
An interesting exercise is to consider just how far the industry has moved and improved in the last six years or so, the improvements have been exponential. Copy trading, Mirror Trading, PAMM accounts, the ECN and or STP broker model, lightning quick fills, spreads and commission so low you wonder how many brokers actually turn a profit, free charting packages that would have cost €100 a month a decade ago, ability to trade through charts to name several improvements. And the level of information, in terms of FX calendars and expert opinion, is exhaustive at times.
It’s fair to say that the retail FX industry is unrecognizable from the early start growing pains it experienced approximately a decade ago. Can we expect more innovation? Certainly, a prediction that we’d put faith in is that the gap between retail trading platforms and ‘pro’ platforms will close over the next few years. Similarly your ability to code, to really code, not just develop expert advisor strategies to use on MetaTrader, will become common place. The future really is bright.
Bank for International Settlements 2013 FX Report
The preliminary global results from the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. FX swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.
The growth of foreign exchange trading was driven by financial institutions other than reporting dealers. The 2013 survey collected a finer sector breakdown of these other institutions for the first time. Smaller banks (not participating in the survey as reporting dealers) accounted for 24% of turnover, institutional investors such as pension funds and insurance companies 11%, and hedge funds and proprietary trading firms another 11%. Trading with non-financial customers, mainly corporations, contracted between the 2010 and 2013 surveys, reducing their share of global turnover to only 9%.
The US dollar remained the dominant vehicle currency; it was on one side of 87% of all trades in April 2013. The euro was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010. The turnover of the Japanese yen increased significantly between the 2010 and 2013 surveys. So too did that of several emerging market currencies, and the Mexican peso and Chinese renminbi entered the list of the top 10 most traded currencies. Methodological changes in the 2013 survey ensured more complete coverage of activity in emerging market currencies.
Trading is increasingly concentrated in the largest financial centres. In April 2013, sales desks in the United Kingdom, the United States, Singapore and Japan intermediated 71% of foreign exchange trading, whereas in April 2010 their combined share was 66%.