State of the Forex Industry Address

Every three years, the Bank of International Settlements (BIS) conducts a survey on central banks all over the world to gather information about the Forex and over-the-counter derivatives markets. The most recent one, conducted in April and June 2010, was already its eighth. Here are some of their findings.

How Big is the Forex Market?

According to the report, the global foreign exchange market’s turnover amounted to about 4 trillion USD in 2010. If you do the math and compare that to the 3.3 trillion USD average daily turnover in 2007, you will see that it grew by an amazing 20%!

A huge chunk of that growth was due to the surge in spot transactions that increased by 40%. Three years ago, spot trading was projected to have only been around 1 trillion USD. Come 2010, it was estimated at around 1.49 trillion USD and accounted for 37% of the entire foreign exchange market. Swaps, forwards, options, and other foreign exchange products comprised the rest of the 4 trillion USD.

Market turnover has more than doubled since 1998, showing sustained growth after a minor slump in 2001 when it fell to 1.2 trillion USD from 1.5 trillion USD. It seems as though the financial crisis did very little to scare away investors from the currency markets, huh?

What were the most traded currencies?

currency-distribution.png
Note: The sum of percentage shares totals to 200% since two currencies are involved in every transaction.

As expected, the dollar topped the popularity list, accounting for 84.9% of the total market turnover in 2010. However, it did fall by 0.7% compared to 2007 as euro transactions increased. The shared currency came in second, with its market share at 39.1%, followed by the Japanese Yen comprising 19.0%.

On the other hand, the British Pound was the biggest loser among the majors dropping by 2.0% to 2.9% in 2010 and GBP/USD trades lower by 6.5% from 2007.

Interestingly enough, the comdoll fans grew in number over the past three years as evidenced by the 35% increase in AUD/USD orders and 44% in USD/CAD in 2010. Happy Pip must be very… errr, happy.

Where Do Most Transactions Happen?

It seems that Western Europe is still the hub for spot Forex trading. Next is North America, which includes the U.S. and Canada, while the Asia-Pacific region comes in at third with a 20% share.

fx-spot-turnover-by-region.png

What Else is in the BIS Survey?

The stats above are the main growth points over the last three years, but the BIS triennial survey is filled with a lot more juicy data. If you’d like to see the rest, you can head on over to the BIS website and download the latest triennial survey.

After reading the data, I think we can all agree that the Forex market is growing at a very fast pace. This should be good news for retail traders like you and I because liquidity growth ensures us that we get the best deals in our trades. Also remember that more liquidity means that no single entity or group of people can corner the market and make it move the way they want.

Personally, I don’t see the retail Forex market going away any time soon. In fact, I see quite the opposite… I believe the Forex market will continue to grow at an amazingly fast pace, especially as the global economy continues to recover!

3 comments

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