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Trading volumes surging despite lack of volatility

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.

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