Partner Center Find a Broker

Market junkies seem to have gone on vacation earlier than usual in December last year as forex activity took a huge hit. Or did traders simply move to other markets?

Not even the highly-anticipated tax reform announcement or December Fed rate hike were enough to spur big moves among majors while other pairs mostly hibernated in their ranges during the month.

GTX, the institutional arm of GAIN Capital, reported a 23% slump in total trading volumes from November to December 2017 at $247 billion. Based on average daily volume (ADV), the number was down 15% from $14.6 billion in the previous month to just $12.3 billion. Still, activity is up 25% on a year-over-year basis.

Forex ECN FastMatch saw a 12% drop in trading volumes from November, dropping to $15.6 billion ADV in December to chalk up its third consecutive monthly decline. This is also the firm’s lowest ADV for the entire year.

Of course this is not entirely surprising since traders usually switch to profit-taking and number-crunching mode before the year actually ends. Activity usually slows in the last couple of weeks of December, and the numbers from FastMatch do indicate that ADV in December 1-15 was in line with that of November and October.

FastMatch Daily FX Volumes
FastMatch Daily FX Volumes

Institutional forex ECN Cboe FX Markets (formerly Hotspot FX) reported a 7% month-over-month drop in December volumes from $33.9 billion ADV to $31.7 billion.

Then again, November marked the firm’s strongest showing due mostly to EUR/USD’s big moves then. Besides, the December numbers are still above the firm’s average of $28 billion ADV for the year despite the seasonal lull. And on a year-over-year basis, volumes were still up 29.2% from December 2016’s $24.1 billion ADV.

Currency Pair Volume (Cboe FX Markets)
Currency Pair Volume (Cboe FX Markets)

The breakdown of currency pair volume from Cboe FX Markets reveals that EUR/USD was still the most actively traded one at $5.78 billion worth of transactions in the New York market and at $1.07 billion in London.

Dollar traders were understandably uneasy leading up to the tax bill vote as Congress hit a few snags before eventually getting the reform package signed, sealed, and delivered. This likely kept traders hesitant to place more bets on the scrilla, a market theme that has actually been in play for the most part of 2017.

Meanwhile, political developments in Germany and Brexit jitters were present in the early part of December, also explaining why European traders probably took it easy with their positioning then.

Another factor that could explain the slowdown in December forex activity was the more eventful happenings in the cryptocurrency scene. Traders thrive on volatility, after all, and the fact that bitcoin has been hogging the spotlight and surging to record highs mid-month likely captured market participants’ attention.