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Trading volumes surging despite lack of volatility

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By:
Lee Oliver
Published on:

According to both EBS and FXall, the first quarter of 2006 was the busiest ever for FX trading. Talking purely about spot, EBS says daily activity in the quarter averaged $132 billion, a 2.3% increase on the same period in 2005.

The company says that its busiest day in the quarter was February 10, when more than $191 billion was traded. This figure was reached by a total of 102,000 transactions, meaning that the average deal size on EBS has fallen below $1.9 million.

Players are attributing the continuing growth in the market to the increasing use of algorithms, which is resulting in smaller ticket sizes going through. Alan Fletcher, director of FX and bullion at Oanda, says: “We saw a 40% increase in the first quarter over 2005. What’s encouraging is that there seems to be a whole new class of FX players coming into the market, which is helping to keep overall volumes growing at a time when volatility in the market is actually very low.

Fletcher adds that many sell-side players are struggling to handle volume of small-ticket trades profitably. “Some guys are complaining that the business is ‘dross’. Lots of small trades are being fired through rapidly and you have to have smart systems in place to be able to handle and make money from this type of business. We are set up to do that and capture the spread by having sophisticated risk management protocols in place. So the increase in activity is extremely welcome,” he adds.

The EBS data suggests that new entrants are playing an increasingly important role in the market. EBS now has 147 prime customers, who access the platform using credit lines from sell-side players. Average daily volumes from the EBS Prime business, which went live abut 18 months ago, are now running at more than $25 billion.

As well as its volume figures, EBS announced that it had entered the final stages of its three-year programme to upgrade its technology and operations. The company said it had migrated more than 2,000 traders in more than 700 dealing rooms in more than 50 countries to its new architecture. It also said it had upgraded its three main matching engines in New York, London and Tokyo and completed the re-engineering of its core telecommunications network.

Bill Moran, the company’s chief operating officer, says: “The challenge for any FX platform seeking to provide a fair distribution of prices is the scale of the geographic challenge... Foreign exchange is a truly global business...Through our distributed architecture we have simultaneous price distribution in over 40 markets.”

Elsewhere, FXall also reported record levels of activity, with first-quarter volume totalling $2.1 trillion, a 35% increase on the same period in 2005. Phil Weisberg, CEO, FXall, says: “These figures are a testament to FXall’s focus on meeting the requirements of our growing and diverse customer base. As FX trading volumes continue to rise, and customer requirements become more complex, there is more demand than ever for advanced execution and workflow tools combined with consistently deep liquidity across all currency pairs and tenors. We will continue to strive to offer the deepest liquidity, tightest prices, and most efficient trading environment for all our institutional clients.” The company declined to provide a breakdown of its figures, but did say the majority was spot business.