Retail Slowdown Contributed to Decline in Global FX Trading Volume

Global foreign exchange (FX) trading activity slowed last year, with some notable exceptions. The first exception is Japan, where a surging yen led to a pick up in trading volumes driven by financials. The second exception is trading volume in Tomorrow-Next (Tom/Next) and other short-dated roll-over trades, which increased 68% last year.

Greenwich Associates tracks FX trading volume among a universe of 1,563 end-user corporate and institutional customers. Volume figures calculated in its research exclude inter-bank and other trades between market counterparties. Greenwich Associates also generally excludes Tom/Next and other short dated roll-over trades in its official customer trading tallies.

On this basis, the research results show that global FX trading volume declined approximately 13% from 4Q09 to 4Q10 – a fall-off in trading volume spanning the US, Europe and Asia (outside of Japan and Australia/New Zealand). In the US, FX trading volume declined 22% year-over-year. Trading volume fell 20% in continental Europe, 8% in the UK and 12% in Asia (ex- Japan and Australia/New Zealand).

The picture looks much different when Tom/Next transactions are allowed back into the mix. If these trades were included in total customer volume figures, overall global FX trading volume would have actually been flat to even slightly higher from 2009 to 2010. “Historically low overnight borrowing costs have altered the economics of these trades, providing users with a cheap way to fund positions and make interest-rate plays,” said Greenwich Associates consultant Frank Feenstra.

Retail Slowdown Contributes to Decline

Outside the Tom/Next business, the decline in customer trading volumes was consistent across corporate and financial FX users. Globally, FX trading volume generated by companies fell 16% year-over-year and volume from financials fell 13%. Among the financials, volumes declined for hedge funds and customer banks. Only among fund managers and pension funds were year-to-year FX trading volumes essentially unchanged.

A main contributor to the global slowdown from 2009 to 2010 was a pronounced drop in FX trading volume generated by retail traders. Retail traders played a big role in the volume growth in late 2009. But trading volume among a matched sample of 25 of the world’s largest retail FX trading aggregators fell 47% from 4Q09 to 4Q10. Even in Japan – a market in which overall FX trading volumes increased over the period and a country that includes the world’s largest and most active retail FX market – trading volumes generated by retail aggregators declined 12% on a matched sample basis. “The year-to-year declines in global FX trading volume are only one half as large when retail aggregators are excluded from the mix,” said Greenwich Associates consultant Woody Canaday.

Deutsche Bank Retains Greenwich Leader Position in Global FX Market Share

Deutsche Bank and Barclays Capital top the ranks of the global FX market in terms of market share, with Deutsche Bank holding a slight lead over Barclays Capital (10.7% versus 10.5%). Both firms have built their market-leading positions on their commanding presence among financial clients, among which the individual markets shares of Deutsche Bank and Barclays Capital top those of their nearest competitor by more than a full percentage point. Among corporate users of FX, Citi leads all dealers with a market share of 10.5%. All three of these firms rank among the 2011 Greenwich Associates share leaders in global FX services.

The 2011 Greenwich quality leader in global FX service is HSBC.


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