Excellent analysis of the trends from the latest 2010 BIS Triennial FX Survey, much has been covered in this blog before, but lots to digest: (here)
A few picks from the data shows:
- Top single-bank trading systems have increased by up to 200% over the past three years
The growth since 2007 is primarily due to the increased importance of single-bank trading systems.
- Concentration of liquididty continuing in hands of top banks
The largest dealers have seen their FX business grow by investing heavily in their single-bank proprietary trading systems.
- Internalisation of FX flows rises from 25% to over 80% in past three years for top dealers
See previous post on internalisation (here)
- Increased volumes driven by algorithmic trading
Algo volumes on EBS now account for 45% of total spot compared to 2% in 2004. High Frequency Trading (HFT) may account for 25% of global daily FX volumes.
- Retail FX estimated to account for 10% of FX flows, via retail aggregators
Importance of retail flows, and the use of the retail aggregators. Trading by households and small non-bank institutions has grown enormously, with market participants reporting that it now accounts for an estimated 8–10% of spot FX turnover globally ($125–150 billion per day).
Conclusion from report:
Electronic trading is transforming FX markets and encouraging greater trading by the category of “Other financial institutions”. This broad category includes smaller banks, mutual funds, money market funds, insurance companies, pension funds, hedge funds, currency funds and central banks, among others.
Higher trading by other financial institutions is responsible for 85% of the increase in daily average turnover between 2007 and 2010. Within this category, the main contribution appears to come from high-frequency traders, banks trading as clients of the biggest FX dealers and retail investors trading online.