BIS on the FX market: Volumes in October drop to $5 trillion, growing long term

Triennial survey by the Bank for International Settlements reveals more on retail forex industry, findings still questionable

In its recently released Triennial Survey which was conducted between 2010 and 2013 the Bank for International Settlements has reported that April of 2013 was the month with the highest forex volume on record – $5.3 trillion dollars per day were shaking hands in the market.

Since then volumes have modestly pulled back, with activity subsiding not only in the Japanese Yen against the US Dollar, but in the Euro to the US Dollar as well. According to the data in the survey, in October the total worldwide forex transactions per day pulled back to $5 trillion. In the context of the previous Triennial Survey from 2010 the trend has been remarkably steady as volumes totaled just below $4 trillion at the time.

The survey is released once every three years and has a variety of data points which we cannot cover in a single article. However since LeapRate covers mostly the retail sector of the market we will certainly take a glimpse at conclusions that can be drawn for this sector of the industry. We have earlier reported on some of its preliminary results and the controversy that we feel is surrounding those, however lets get into some detail on the retail FX component. 

The BIS acknowledges how retail-oriented platforms such as FXCM, which is one of the brokerages in the LeapRate approved list and Oanda have changed the nature of the market during the last decade and it is no longer the privilege of mainly large financial institutions and big corporations. Retail volumes have accounted for 3.5% of total turnover and 3.8% of spot turnover. In absolute terms the amounts traded in Japan and the US are leading the sector.

Retail trading centers are completed by the United Kingdom, France, Switzerland, Hong Kong and Singapore. Germany is also here, however for some reason spot trading volumes are negligible when compared to the rest of the world we find that to be rather awkward. While the US is leading in global retail volumes overall, Japan maintains its lead in spot trading.

global fx centers

In a curious breakdown of retail Japanese volumes by currency pair the carry trade seems to be alive and kicking with the NZD/JPY taking top spot with about 35% of total. It is followed by EUR/JPY, GBP/JPY, AUD/JPY, EUR/AUD and ZAR/JPY. It would be interesting to know how was this data collected, carry trades have been out of fashion for the past couple of years, yet the past year with the dramatic increase in volumes could be explaining the huge share of the NZD/JPY cross.

japanese fx pairs

Turnover has been growing steady across the board with FX swaps leading followed closely by spot trading. That said the growth in spot trading in the past three years has been faster and in the coming years, and as technology becomes ever more accessible our feeling is that we could observe a switch in their places in the very near future.

fx turnover by instrument

We partially got an answer to the questions we asked in our previous analysis of the preliminary report. Data for the survey was sources primarily from surveys of financial institutions and turnover data reported by trading platforms and FX settlement systems. Semiannual surveys are conducted in Australia, Canada, London, New York, Singapore and Tokyo. As we suspected, much of the trading in the retail forex world occurs at private, small to medium sized brokers which have no desire to reveal their true trading volumes to anyone.

Going back to the volumes, the survey does confirm our theory that the main reasons for the reduction in trading volumes is uncertainty surrounding the political outlook in the US and the unknown timing of the Federal Reserve’s “tapering”. A number of large banks have experienced a drop in revenues from subdued trading activity.

For the full quarterly report that contains vast amount of information from the triennial survey by the BIS click here.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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