Euro Zone Woes Boost Forex Trading Volumes in May

May was definitely a good month for the forex market. Data from various market players show that trading volumes were up during the month. Let’s take a look at some of them, shall we?

FXCM

One of the biggest retail brokers in the forex industry, FXCM, reported that there was a huge jump in trading volume. FXCM is a good proxy for the retail forex industry because of its size and the amount of volume that goes through it from the world’s three major markets–Europe, the U.S., and Japan.

FXCM said that trading volume rose 23%, or $304 billion, in May compared to the previous month. On a day-to-day basis, the average retail trading volume was 12% higher from the previous month, but 11% lower year-on-year. Average institutional trading volume, however, was all good. It was 22% higher than April 2012 and 65% higher from May 2011.

FXall

FXall, another big publicly-listed retail forex broker, also reported positive growth. It indicated that total average daily volume for May 2012 increased 1% from the previous month and 5% from last year.

Interbank Platforms

The Reuters Dealing 300, one of the two major interbank platforms, experienced growth as well. Average daily currency trading volume was reported to have climbed 19% ($154 billion) in May from the April. Meanwhile, its major competitor, the Electronic Brokering Services platform, said that average daily turnover surged nearly 19% ($130.8 billion).

Market analysts point to the escalation of Europe’s debt crisis as one of the primary reasons for the pick-up in trading activity for the month. Talks of a Grexit, threats of bank runs, rising European bond yields, and concerns about the Spanish bail out seemed to have attracted traders to the forex market to make some money selling the euro.

The COT reports from the CFTC also support this assumption. Net short EUR positions rose steadily from the start of the month. The figure for the report released on May 4 showed that short positions on the shared currency were at 107,000. Data released on June 1 revealed that net short positions have gone all the way up to 203,400.

It’s interesting that many analysts point to Europe’s debt crisis for the increase in trading volumes especially since back in March, concerns about the region’s fiscal situation was said to have been one of the causes for the decline in trading activity. Could the data for May be indicative of a new trend?

Market gurus over at Greenwhich Associates, a think-tank dedicated to providing comprehensive research to financial professionals, think so. Their estimates show that should Greece or any other periphery country leave the euro zone, the trading volumes in the forex market would increase by 7.5% for the following year.

This is definitely good news for forex traders! The way I see it, the forex market will be robust enough to handle whatever should befall the euro zone, even if it’s a break up. And with an increase in volatility, it should be great pickin’s for all types of trading styles; let the games begin!

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