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It seems no one is safe these days. Over the past few months, we’ve been hit with wave after wave of reports of lower trading volumes from the largest players in the forex trading scene.

Just this week, CLS Bank, which runs the biggest currency-transaction settlement system in the world, reported that its daily turnover fell 6% in Q3 2012 from a year earlier.

Likewise, ICAP Plc, which happens to be the world’s largest broker of inter-bank transactions, saw its average daily forex volume slide a jaw-dropping 46% from October 2011 to October 2012.

Retail forex giants aren’t doing any better. As I mentioned last month, FXCM saw an 18% decrease in September 2012 compared to a year before. Meanwhile, Gain Capital saw its retail trading volume drop by a staggering 38% year-on-year in Q3 2012.

There are a hundred possible explanations for the significant decrease in trading volume, but I have narrowed it down to three main reasons.

The first and biggest contributor is central bank intervention. It’s no secret that central banks have been using everything in their arsenal to defend their currencies against market speculation.

But with Japan, the U.S., and the eurozone keeping their interest rates at record lows, the demand for USD, EUR, and JPY (the three most traded currencies) is also taking a hit.

Carry trades, another popular form of forex trading have also suffered from the shift in central bank policies. In the past, traders had enjoyed high-interest rates from countries like Australia, Sweden, and Brazil.

But with slow global growth and strong currencies cramping domestic growth, central banks have systematically cut their interest rates, providing less reward for carrying trade transactions.

And then there’s the ever uncertain market environment. There has always been an element of uncertainty in the markets but you gotta admit that predicting sentiment is harder these days.

Eurozone leaders are scrambling to keep the peripheral regions in the currency block, the U.S. officials are burning the midnight oil over the Fiscal Cliff, and China is struggling to show that its economy is still growing. With x-factors like these, you can’t blame the investors for pulling out of the markets and sitting on the sidelines.

Another factor, one that’s not so obvious, is tighter regulations in the U.S. Though many of the Dodd-Frank regulations won’t be implemented until next year, higher capital and margin requirements are already taking their toll on major players in the markets. Heck, some regulations are even threatening interbank transactions with foreign banks!

Trading Outlook

From the looks of it, we’ll have to get used to seeing low volume and volatility, at least for the time being. With central banks all around the world determined to ease monetary policy and defend their own currencies, the market environment just isn’t as conducive to heavy trading activity at this time.

Traders have been cutting back on their risk exposure because the potential rewards just don’t justify the risks these days. And they’ll probably continue doing so until central banks shift their stances.

Still, this shouldn’t stop you from making pips. Great traders learn to adapt to changing market conditions. Explore your options and look into strategies that do well under less volatile conditions. Alternatively, you can also opt to trade larger position sizes to make up for the lack of volatility.

Remember, adaptability is the key to surviving and thriving in the forex industry!