Tag Archives: volume

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.

The blogosphere was atwitter yesterday following Ben Bernanke’s class presentation at George Washington University. He did a hatchet job on the idea of the US ever going back on the gold standard, and the overall idea of having a gold standard period. This is obviously a major hot-button topic in both the markets and the broader world these days, so naturally there have been some heated reactions. I won’t wade into that particular battle, but did think it’s worth looking at how the metal is doing.

The chart below is the continuous front-month gold futures contract with open interest (green) and volume (purple) plotted below. There are some interesting things to be gleaned from the last two years of trading activity.

Gold Chart

Two things jump out at me.

First, notice the general downward slope in the peaks of Open Interest (OI). Ignore the sharp declines which are spaced through as that represents the futures roll-over period. Just look at the relative heights of the peaks and how they have been sloping lower since early in Q4 of 2010. That’s a sign of falling participation in the market, especially over the last several months following peak last year. This is a good explanation for why gold hasn’t been able to manage even a retest of that prior peak on the last couple of upswings.

The other observation, which is harder to specifically see the chart, is that we’ve seen a pattern shift in volume. Heading into the peak in August the volume spikes tended to be on moves higher. Since then, though, the major volume spikes have all come on big down days. That’s an indication of a change in psychology whereby the longs are no longer as secure in their positions as they were previously and are thus quicker to exit, and/or shorts are more eager to jump in.

I think gold is in trouble here and could easily fall back below 1500 on the next move down. That sort of thing would probably be indicative of support for the USD, but the correlations these days have become somewhat muddled, so it’s hard to be sure.


The currency markets have been acting like a tale of two cities of late. Meaning that risk appetite has increased in some currency pairs providing meaningful moves while other pairs have seen risk aversion applied and enjoyed far less moves. One could argue that we are seeing a similar situation in equities as well.

In foreign exchange the increase of risk appetite has the Yen on the move, backward. Whether it is versus the Euro, British Pound or Australian Dollar the Yen backpedaled in March. Has the ‘carry trade’ returned? It may be a bit premature to state that it has but with Japan’s ultra low interest rates this has been a nice reminder of how the Yen will trade when global interest rates head higher. In equities the general indices are posting sizable gains with indices such as the German Dax posting a 9% gain in March.

Those are nice headlines but as mentioned trading has not been all that easy as risk-taking has not been universally widespread. One currency in particular that had a down month and has only recently showed some renewed vigor is EURUSD. Why is this meaningful? Because EURUSD is the most active currency pair traded in the interbank market as the BIS statistics show and is the most active currency pair traded by individual traders as Currensee shows.

As of this writing Currensee showed that there are 5x as many positions in EURUSD as there are in EURJPY. If you were to also consider volume and not just net positions then that tilt would be probably be even larger in EURUSD. Back to equities, we know that equities have been moving higher but its also well known that the volume in the equity markets has been rather low. In March there were only 4 days where daily S&P 500 volume was over 5b shares traded per day. By comparison in March of 2009 there was Zero days where volume was less than 5b shares traded per day.

Traditionally EURUSD has been the best measure of global risk-taking since the US has an equity surplus. Those light volumes in equities are matching the price action in EURUSD right now and it appears as if the US investors (larger mutual fund and other institutions) are not ready to invest internationally for the added equity return. Interest rate spreads certainly matter but when the DAX is up 9% in a month you might expect a bit more out of EURUSD.

Thus is there opportunity ahead in EURUSD? Taking a close look at the volumes in the major equity indices may provide some clues. Still one does not always need to trade or invest in the most active pairs to find opportunities. The Yen has provided a nice reminder that there are plenty of opportunities to be discovered in the forex market outside of EURUSD.


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