August 2016 Forex Industry Metrics: Ghost Month in Activity?

Market players were still feeling the post-Brexit lull last month as trading volumes continued to retreat. Perhaps traders were spooked by the Ghost Month? Or maybe everyone was more drawn to the Rio Olympics, which was definitely more action-packed compared to market movements last month.

Data from international derivatives marketplace CME Group revealed that August trading activity slumped to an average daily volume (ADV) of 632,000 forex contracts, which is 13% lower compared to July and down 29% on a year-over-year basis. This makes August 2016 one of CME’s slowest months in several years, even as the ADV of emerging market currencies such as the South African rand, Mexican peso, and Brazilian real posted gains.

Institutional trading was slower in the month, with Hotspot FX reporting a 14% decline in August forex volumes to $22.6 billion – its second lowest level in four years – and Gain Capital’s GTX institutional arm showing a 9% monthly decline to $9.7 billion.

Forex ECN FastMatch also reported a 20% month-over-month drop in volumes to $10.3 billion in August, its slowest month so far this year. Interdealer broker ICAP noted that forex volumes in its EBS subsidiary slipped to an average of $68.4 billion per day, which is the year-to-date low for the firm.

As for exchanges, the Tokyo Financial Exchange saw a drastic 26.5% decline in the the volume of Exchange FX Margin contracts from July 2016 levels. On a year-over-year basis, this translates to a whopping 36.6% drop. Trading activity for GBP/JPY was down 52.3% while AUD/JPY volumes fell 50.1%. On the flip side, EUR/USD and GBP/USD saw a rebound in volumes, along with a pickup in activity for the South African rand.

Data from the Tokyo Financial Exchange

Data from the Tokyo Financial Exchange

The decline in trading activity wasn’t so bad on the Moscow Exchange, which reported a small 1.5% monthly drop in forex volumes. Trading volumes on other securities on this exchange, such as derivatives, precious metals, equity and bond markets were up for the month.

Retail trading volumes for Exness FX saw a 22% decrease from the previous month to $253 billion in August, partly due to cyber attacks and intermittent delays on its trading platform since April this year. Interactive Brokers had no retail figures to report as the broker-dealer discontinued its retail spot forex margin offering for U.S. clients due to a new SEC notice last month.

What’s next?

Are trading volumes about to stage a strong recovery this September? While many believe that the pickup in volatility might be enough to encourage stronger activity, Forex Gump has busted this myth by comparing the average true range of major currencies in August and September for the past five years.

Of course he also noted that there’s also a good possibility that major market catalysts could yield strong market moves and therefore convince more traders to get busy. So far this month, we’ve been seeing a lot of central bank chatter, particularly from the BOJ and BOE, as well as a slight shift in tone from the BOC.

Aside from that, ever-shifting market moods about a Fed rate hike and the upcoming informal OPEC meeting could keep traders on their toes for the next few weeks. Either way, just make sure to keep an eye out for potential changes in volatility so you can make the proper adjustments in your trading plans.