Japan Forex market continues to shrink

It appears as if Japan’s retail Forex market, once touted as the world’s largest, continues to shrink in size. While several sources still call Japan the world’s most active (by volume traded) Forex market, with some even stating it measures about half of the entire global market, recent datapoints put out by several key players tend to show otherwise.

Gaitame — Swiss-exchange listed Compagnie Financière Tradition SA (or “CFT”), controlled by France’s Viel & Cie, owns 49.5% of Gaitame, one of the largest Japanese Forex firms. In its 2011 results release, CFT reported that revenue at Gaitame fell 46% (!!) in 2011 as compared to 2010, to CHF 58 million (about $64 million). Annual revenue of $64 million translates roughly, using industry standards, into $55 billion of monthly trading volume for Gaitame. (By way of comparison, in 2011 FXCM had $364 million in revenues from retail trading, and averaged $315 billion in monthly retail volume).

FXOnline Japan — owned now by the UK’s IG Group, and recently rebranded IG Markets Japan. IG Group reported preliminary Q3 results (ended Feb 29, 2012) of £4.0 million in quarterly revenue from Japan, down 12% from last year. Using the same metrics as above, that translates into about $21 billion in monthly volume at IG Markets Japan.

What we learn from these reports is that the Japanese FX market is still reeling from leverage limits put in by regulators over the past two years. It also means that the Japanese Forex market is a lot smaller than most analysts estimate. If Gaitame, arguably the largest Japanese firm, is doing in the neighbourhood of just $55 billion in monthly volume (or about $2.5 billion per day), there is simple no way that the overall Japanese market is, as we’ve seen others estimate, as big as $100-$150 billion per day. We stick by our earlier estimate of about $35 billion per day for the Japan Forex market, or about 19% of the overall global market.

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