Last week the Bank for International Settlements (BIS) released is 2013 Triennial survey of the foreign exchange market. There are two significant takeaways. One has to do with volume. The other has to do with traded currencies.
In the case of the former, we can now call forex a $5trln a day market. Having come just shy of reaching $4trln/day as of the 2010 survey, the market made a jump in overall volumes of more than 30% in the last three years. When we consider all the concerns there were not that long ago about declining volumes, this is pretty impressive.
The table below comes from the BIS report. Swaps continue to be the single largest portion of the global forex market. It’s a close thing at this point, though. The spot market volumes grew at a nearly 38% rate between 2010 and 2013, while swaps only grew at about 27%. It may not be long before the spot market finally takes the lead. Not that it matters a great deal, however, as it is the spot market where exchange rates get set, not the swap market.
So it seems pretty safe to say the forex market isn’t at risk of becoming a backwater any time soon. :-)
Things get even more interesting when we turn our attention to which currencies and currency pairs are seeing the most volume. There has been some shifting in the ranks in the last three years. As we can see in the table below, the USD remains the dominant currency, and has even seen its share of total trade increase. So much for the idea that currency diversification by the likes of the BRICs would see the greenback’s preeminence falter.
Actually, the currency which has taken a hit thanks to its issues over the last few years is the EUR. Its share of the global volume pie has dropped by nearly 6 percentage points. On the flip side, the JPY volume share has risen 4 percentage points, no doubt thanks to the considerable volatility that currency has seen in recent years.
The most notable gainers, though, are the MXN and CNY. Both jumped several other currencies to reach 7th and 8th in the global rankings respectively. It might not be long before they challenge the slipping CAD and CHF for the next tier, at which point we may have to declare some new “majors” in the world of forex trading.
Notice the right side table above the gains made by USD/MXN and USD/CNY as well. Here too they are not far behind USD/CAD and USD/CHF. The question there will be when we start to see much narrower spreads for those two pairs, as they remain quite wide (75 pips and 25 pips as I write this looking at OANDA’s spread page)
In line with the losses in ground by the EUR generally, the relative volume of EUR/USD has slipped a bit. It remains well ahead as the #1 traded pair, though, despite gains by USD/JPY.
It’s worth noting that the BRL is not anywhere on the list above. That will be one to watch moving forward.