Transaction volumes for foreign exchange trading have returned to levels not seen since the late 90s, according to new research from Tower Group.
Though the volumes have been rising for the past five years, new business models have fostered the rise of FX trading through a diverse selection of venues and electronic foreign exchange.
By 2007 the global FX daily average will exceed $3 trillion, up from $1.77 trillion in 2004, according to the research by TowerGroup. Of that volume, 44 percent of transactions will be made electronically.
Though FX trading is dominated by larger banks, the large amount of new execution venues will make it easier for traders to enter into the FX market and reduce the risk of transactions.
TowerGroup’s research expects FX venues to consolidate and hedge funds will continue to be the drive behind technology innovation for the FX marketplace.
“The types of players that engage in FX trading range from national central banks and dealer banks all the way down to day traders in an arcade,” says Tom Price, a senior analyst in the securities and capital markets research service at TowerGroup. “These myriad players have many different reasons for participating in the FX marketplace, and their individual motivations determine their specific methods and venues for trading.”