I've often read that the percentage of end-user activity in the Interbank foreign exchange markets on a daily basis is somewhere between 1% and 3%, and I suspect I could probably find a similar percentage of activity in other areas of the wholesale markets
such as interest rate derivatives
Speculative activity and risk transfer is crucial in the provision of efficient markets to the end-user. But I do wonder if this figure of only 1%-3% of end user activity is another example of the tail wagging the dog in the financial casino.
Only large corporations and financial intermediaries can get access to these super efficient wholesale markets, but what good is that to 95% of us who don't have access!
Ok... so the small guys aren't worth the time stamp on the trade ticket, and anyway that's what financial intermediaries do, buy things from the smaller guys at one price and package them up to hedge or sell in the wholesale markets at a profit.
I recently read a good example of this in article in the FT where certain UK councils were having to band together to hedge their annual fuel and Oil exposure because as individual entities their business wasn't large enough to intrest any brokers.
Lets just remind ourselves that markets exist because of the end-user, and markets without end-user activity will eventually dry up ( once all the market-makers and speculators have got bored of playing cat and mouse with each other.)
Something is wrong here, and the small guy (there's quite alot of them!) is beginning to get fed-up with the status quo.
The technology that can enable mass-participation on this level is now with us. As Prof. Robert Shiller said recently of the internet being capable of "bringing Wall street to Wal-mart", and perhaps we can enable a higher percentage of end-users access to