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Foreign Exchange

Global FX turnover at $4.9 trillion a day; London’s dominance continues

Average daily turnover in the global FX market totalled $4.9 trillion in April 2012, according to a new report from TheCityUK, the British financial and professional services group.

The report models the twice-yearly FX turnover releases from leading central banks as closely as possible on the methodology of the Bank for International Settlements’ (BIS) comprehensive triennial survey of FX volumes, thereby reducing the potential double counting of transactions. It shows average daily volume in traditional FX market transactions totalled $4.6 trillion in April 2012. When turnover from non-traditional FX derivatives and products was included, that figure rose to $4.9 trillion.

While 5% down on 2011, turnover remains close to record levels.

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TheCityUK maintains that the volume of FX trading activity remains on a long-term upward trend, notwithstanding the dip in activity in 2009 as the effects of the financial crisis weakened global trade, and produced a fall in activity and a wave of deleveraging from international investors.

The group says the long-term upward trend remains intact, given the growing importance of FX as an asset class, the increase in global fund management assets and growth in the use of financial derivatives. In addition, the diverse selection of FX execution venues and development of electronic platforms has made it easier for retail traders to access the market, the report notes.

London’s dominance

London was the main centre for FX trading, with average daily turnover of traditional FX products totalling $1.859 trillion in April 2012, along with a further $141 billion traded in currency derivatives.

That took London’s market share of global FX up to 38%, from 37% in the last biennial BIS survey in 2010. The US was the second largest centre with 18% of the global total. Singapore and Japan were the next largest centres with around 5% each. Most of the remainder was accounted for by Germany, Switzerland, Canada, France, Australia and Hong Kong.

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Twice as many dollars are traded on the FX market in the UK than in the US, and more than twice as many euros are traded in the UK than all the eurozone countries combined.

That reflects London’s position as Europe’s leading financial centre and the world’s leading global international financial sector.

The report notes that around half of European investment activity is conducted in London. Meanwhile, about 80% of Europe’s hedge funds are managed in London, which is also Europe’s main centre for FX prime brokerage.

Geography plays its part, with trading activity at its highest when leading markets overlap. That produces spikes in trading early in European time and as North American markets open.

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Source: Reuters

However, Chris Cummings, chief executive at TheCityUK, warns against complacency.

“The increase in London’s share demonstrates the importance of the UK as a centre for international financial services,” he says.

“However, these are competitive times and we are facing competition from other financial centres. We need to do all we can to ensure that the UK’s financial and professional services sector remains globally competitive and can flourish.”

This article was originally published in Euromoney FX News.

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