Forex Daily Volume Exceeds $5.3 Trillion

International currency collage
Well, the FX market is without a doubt expanding. According to the Triennial Central Bank Survey of Foreign Exchange preliminary global results, the FX market exceeded its previous high trading volume of $4 trillion dollars a day. Released on September 5, 2013, the BIS report calculated that in April of 2013, the FX market’s average daily trading volume was $5.3 trillion dollars a day. So, in the last three years, the market has increased its volume by 30%. Overall, many of the components of the market remain unchanged. However, there are some minor developments that should be examined. Namely, foreign exchange swaps, which account for 42% of all currency transactions, grew 27%. This increase places the swap volume at $2.2 trillion dollars a day.

Spinning Globe/Ian McKinnell
Spinning Globe/Ian McKinnell

In addition, forwards and options trading expanded the most at 60%. While those stats may be superb, the segment most relevant to this site yields increases that are quite telling. Since 2010, spot foreign exchange trading grew a whopping 38% and increased its daily volume to $2 trillion dollars per day. Although the swap and spot segments both expanded this period, the spot market’s increase was 11% greater.

Global Exchange Market Turnover 1998 – 2013
Global Exchange Market Turnover 2013

Still, the question remains. Why is volume in the foreign exchange market so massive? The global GDP is approximately $70 trillion dollars. Now, if you subtract the $19 to $20 trillion allocated to the global import/export market, there’s roughly $50 trillion dollars left over.The United Nations on Trade and Development World Investment Report claims direct foreign investment was only $1.3 trillion last year. So, evidently, the Foreign Exchange market has proven to be an opportunity for investors to seek yields and increase profits. Consequently, it should be an incentive for traders to continue to research and study charts to improve their skills and increase profit margins.

Global Currency Pair Distribution 2013

Individually, major currencies have sustained their prospective positions. The USD is still “numero uno” and in fact has increased its share of trade percentage. Due to the previous credit issues in the Euro Zone, the EUR suffered a 6% decline in its share of the global volume, while the JPY enjoyed a 4% increase. Also on the upside was the MXN and the CNY. As a result of their upward momentum, they now round out the top 8th and 9th traded currencies respectively. As expected, the EUR/USD pair stands a top of the heap, even after experiencing a little slippage.

BIS Triennial Survey Report April 2013
BIS Triennial Survey Report April 2013

In the final analysis, the BIS Triennial Report yielded pertinent information that suggests consistent growth within the foreign exchange market. While this is encouraging, these increases should be expected. In the event that slow growth has all but paralyzed traditional markets, investment funds in search of yields, will find themselves where the money is. This also includes Emerging Markets. For this reason, Mexico and China have found their way into the top ten most traded currencies as previously noted.

Global Market Turnover by Financial Institution 2013

BIS Triennial Survey Report April 2013
BIS Triennial Survey Report April 2013

Given these points, in addition with the data in the chart above, which details the activity of hedge funds and other financial institutions, the forex is growing due to a large influx of investment from smaller banks and direct foreign investments in emerging markets. This pattern may only continue for a short period. Primarily due to the U.S. Federal Reserve’s impending drawback on its bond purchasing program. When the taper does occur, and it will, expect a slight pull back from foreign investment dollars that will undoubtedly be headed back to the U.S. when interest rates rise. In any case, the forex market isn’t going anywhere.


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