Buy-side boosts FX trading volumes

Buy-side boosts FX trading volumes

Foreign exchange trading volume on electronic platforms doubled to $35 trillion in 2006, according to research released by Greenwich Associates which found that for the first time buy-side investors executed more than half of total global FX volume on automated systems.

Total e-FX trading volume rose to $35 trillion in 2006, up from $17 trillion in 2005, says Greenwich Associates.

The survey of 3000 participants in the foreign exchange markets also found that increasing use of electronic FX trading is contributing to growth of the global FX market in general, which saw volumes increase by 17% from 2005 to 2006.

Says Greenwich Associates consultant Giovanni Carriere: "Electronic trading systems encourage volume growth by making currency transactions easier and cheaper, by aggregating and increasing liquidity, and by extending market access to investors that otherwise would not be able to participate — especially retail investors."

The prevalence of easy-to-use e-trading platforms in the market has resulted in retail investors making up a growing share of the global FX market. Greenwich says the new technology has allowed this entirely new customer base to enter the FX market and this has increased volumes rapidly and consistently over the past several years.

But the research shows that use of e-fx trading systems is spread unevenly around the world. Although six in 10 currency dealers in Europe and the US trade electronically, only two in 10 do so in Canada. In Japan one in three dealers use e-trading platforms while in the rest of Asia the share is 50%.

Overall the research showed that the number of FX traders that have no plans to ever deal electronically dropped from 43% in 2005 to 36% in 2006. Greenwich says for several years the FX market was evenly split between e-traders and abstainers, but in 2006 the tide turned and users that had spurned e-trading system became converts.

While new investors are embracing electronic trading, earlier adopters are ramping up their activity significantly, says Greenwich. In a 2005 study respondents said they executed 53% of total FX trading volume through e-trading systems, but in 2006 that share jumped to 60%.

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