New research from TowerGroup predicts that by 2007, the global FX daily average volumes will exceed USD 3 trillion, with more than 44 percent of transactional volume conducted electronically. This is an increase from USD 1.77 trillion in 2004.
Transaction volumes for foreign exchange (FX) trading have continued to rise over the past five years, returning to levels not seen since the late 1990s. New business models and changing motivations for trading FX products as an asset class have created greater buy-side participation, and given rise to an increasingly diverse selection of execution venues with a focus on electronic foreign exchange (e-FX).
FX trading is still dominated by the large dealing banks, yet exchange-like models fueling a bid-and-offer market are challenging the traditional request for quote. With the appearance of new execution venues, it has become easier for traders to enter the FX market and reduce the risks associated with these transactions.
“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 & 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.”