BIS Triennial FX survey – way off the mark on the Retail Forex Industry

The Bank for International Settlements (or “BIS” for short) has released the preliminary results from its BIS Triennial Central Bank Survey, which it modestly terms as ‘the most comprehensive source of information on the size and structure of global foreign exchange (FX) and OTC derivatives markets’.

And for the first time, the BIS breaks out the Retail FX sector (or as the BIS calls it, retail aggregators) in its survey, although we question some of their results, especially as they pertain to the Retail FX industry — more on that below.

The survey’s key findings? And how does the Retail Forex sector fit in?

FX Market Size – the global FX market, according to BIS, has grown about 33% in the past three years, hitting $5.3 trillion in turnover each day (as of April 2013), up from about $4.0 trillion daily in 2010.

Increasing Market Concentration – according to BIS, there is more concentration in the FX trading sector today than three years ago. Trading desks in the UK, the US, Singapore and Japan now intermediate 71% of foreign exchange trading, versus just 66% three years prior. We believe that stat to be half true, but at the same time very misleading. While we concur that there has been concentration of forex dealers the past three years, as more stringent regulations make it more economical to operate larger firms, there has been a nice de-concentration of trading on the trader side of things — the fastest growing regions of forex trading have been outside the main financial centers. Areas such as China, the Middle East, and more recently South America are where the growth is, although traders there are trading mostly with forex brokers based in large financial centers.

Retail Forex – according to the BIS, ‘retail aggregators’ account for just 3.5% of global FX trading — meaning that they peg the Retail FX industry at just $186 billion per day. We believe (actually, we know) that their number is way off. Our Retail FX Volume Index sits now (as of July 2013) at $305 billion per day. Indeed, our tracking of just the top 10 retail FX brokers worldwide shows volumes of about $190 billion per day.

Why the discrepancy? We can’t know for sure, but we assume that the survey, like many surveys, are naturally biased toward those who actually complete the survey. And 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. That still doesn’t explain why the BIS’s perceived total of the entire Retail Forex sector is below even the combined volumes of just the Top-10 players. Perhaps, as Mark Twain once wrote, “There are three kinds of lies: lies, damned lies, and statistics”.

The BIS survey’s preliminary global results package can be downloaded here (pdf). The BIS will be releasing more information from its survey in December. Perhaps by then they will correct the Retail FX sector information in the report.

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

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