Magazine article Global Finance

Where Have All the FX Traders Gone?

Magazine article Global Finance

Where Have All the FX Traders Gone?

Article excerpt

FOREIGN EXCHANGE

It is a changing world for FX traders. Regulatory uncertainty and low volatility are putting a damper on the foreign exchange market, with spreads narrowing by 20% already this year-to record lows. FX trading volume is approaching the lowest level in the history of free-floating exchange rates, notes George Saravelos, currencies analyst at Deutsche Bank. Floating rates were introduced more than 40 years ago, after US president Richard Nixon ended the direct convertibility of the dollar into gold.

Many banks have closed down their proprietary trading desks in reaction to the Volcker Rule. And in the UK, the Serious Fraud Office began a criminal investigation in July into alleged rigging of the FX market. These are just a couple of the many pressures now acting on the FX markets.

"Lower transaction costs may lead to lower volatility as markets reach equilibrium faster," Saravelos says. Regulatory changes and scrutiny are also shifting volume away from interbank voice trading and toward electronic platforms, he adds. Volume on Thomson Reuters' FXall, a multidealer platform, averaged $141 billion daily in June, the highest on record. Phil Weisberg, global head of foreign exchange at Thomson Reuters, says: "Expectations in the FX market were that trading volumes would be subdued due to the extended period of low volatility. Our FX platforms [matching, dealing and Reuters Trading for FX, as well as FXall] nevertheless traded a robust average $235 billion daily throughout June."

The firm's overall trading volume in July was up 8% from a year earlier. …

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