An interesting report in Reuters asks if the glory days of FX trading are over.
The FX market’s status as the world’s largest, built up over decades of rampant globalization, deregulation and growth in financial services, is unlikely to be relinquished any time soon. But the glory days, according to Reuters, may be over.
Overall trading volumes and employment levels at the biggest banks trading currencies are shrinking. The culprits? Tighter bank regulation, the fading emerging markets boom and a general slowdown in world growth and trade take their toll.
Reuters cites financial industry analytics data firm Coalition as reporting that the Top 10 FX banks alone operating in Europe employed 332 people on their G10 European FX trading desks last year. That is down 30% from the 475 employed in 2012. And the vast majority of those frontline positions are in London.
Both inside and outside the UK capital, countless other jobs in back office areas servicing the market have also likely disappeared for good even if quantifying that is trickier given the multiple areas these people work across.
Data from multilateral cash settlement service CLS Bank showed average daily FX volume in January was $4.8 trillion, down 9 percent from a year earlier – and a far cry from the near $6 trillion peak set in late 2014.
Trading desks at some of the biggest banks in London and New York are grappling with lower volumes in actively traded currencies like the yen, Swiss franc and Australian dollar over the past year.
Spurred by huge losses for many from the Swiss franc’s surge in January last year, big banks have cracked down on the number of smaller FX hedge fund-style operations they issue credit to and the leverage ratios they give others, halting the growth of highly leveraged speculative trading.
The trend was highlighted in a recent survey by central banks in Britain and the United States which showed daily FX volumes were down 21% in April to October 2015 from a year earlier in London, and 26% in New York.