Two of those three trends held true in 2010: electronic trading systems continued to attract new users - albeit at a slower pace than prior years - and the proportion of overall FX trading volume executed via electronic transactions grew. But the remaining trend, the steady growth in the absolute trading volumes executed through electronic systems, met at least a temporary end last year.

Global Electronic Trading Volume Totals
Greenwich Associates tracks overall foreign exchange trading volume among a universe of 1,563 end-user corporate and institutional customers; volume figures cited in the research exclude Tomorrow-Next Day (Tom/Next) and other short-dated rollover trades. On this basis, the research results show that global foreign exchange trading volume (both electronic and non-electronic) declined approximately 13% from Q4 2009 to Q4 2010. However, the picture looks much different when Tom/Next transactions are allowed into the mix. Trading volume in Tom/Next and other short-dated rollover trades increased 68% last year. 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.

Likewise, the total amount of FX trading volume executed through electronic systems declined by approximately 10% from 2009 to 2010, excluding Tom/Next trades. Since Tom/Next and other short-dated rollover trades are generally executed electronically, any significant pick-up in Tom/Next volume will have a correspondingly large affect on e-trading volumes. As such, when Tom/Next trades are included in the count, global e- trading volumes were essentially flat from 2009 to 2010.

Worldwide, the share of FX market participants trading on electronic systems increased to 62% in 2010 from 61% in 2009. Market participants that use eFX increased the share of their total foreign exchange trading volume executed through electronic channels to 68% in 2010 from 64% in 2009.

eFX Volume Declines in Continental Europe, U.S.
While the decline in e-trading volume (excluding Tom/Next) was consistent between financials and corporates worldwide, the slowdown was not evenly spread among regional FX markets. To the contrary, any drop in global eFX trading volumes last year would have been driven almost entirely by declines in Continental Europe, where e- trading volume totals declined 20% from 2009 to 2010, and in the United States, where electronic trading volumes fell 18%.

Meanwhile, eFX trading volumes on that basis increased approximately 3% in the United Kingdom and 15% in Japan. Volume increases were also recorded in the much smaller markets of Latin America and Australia/New Zealand. The gains in e-trading volumes in Japan and the smaller regional markets mirror patterns in the foreign exchange market overall. From 2009 to 2010 overall foreign exchange trading volumes increased 12% in Japan, and 33% in Australia/New Zealand.

"The fact that electronic trading systems in the United Kingdom were able to maintain and even increase their absolute levels of volume in a period in which overall U.K. trading volumes were down 8% represents a significant achievement," explains Greenwich Associates consultant Peter D'Amario.

Pull-Back Among Retail Aggregators
Perhaps the biggest driver of the declines in both overall foreign exchange trading volume and eFX volumes last year was the slowdown in activity on the part of retail aggregators. Overall foreign exchange trading volume among a matched sample of 25 of the world's largest retail FX trading aggregators fell 47% from Q4 2009 to Q4 2010. Even in Japan - where total trading volumes increased last year and FX trading remains a near passion among retail investors - trading volumes generated by retail aggregators declined 12% on a matched sample basis. The falloff was essentially the same in electronic foreign exchange: while eFX trading volume was essentially unchanged from year to year among banks, fund managers and pension funds, electronic trading volumes generated by retail aggregators declined 49% from 2009 to 2010.

Hedge Funds
Electronic trading platforms captured 36% of hedge fund foreign exchange trading volume last year, up from just 31% in 2009. In a year in which the absolute amount of foreign exchange trading volume generated by hedge funds declined, hedge funds' total eFX trading volume actually increased 19%. That growth was the result of increases in both the share of hedge fund FX market participants using electronic systems and in the share of total FX trading volume routed to electronic platforms by these users. In 2009, two-thirds of hedge funds active in foreign exchange markets traded FX electronically. In 2010 that share increased to 72%. Over the same period, the share of total FX trading volume executed electronically by the typical hedge fund jumped to 58% from just 36%. As a result of that growth, hedge funds now account for 11% of total electronic FX trading volume, up from 8% in 2009.