For the first time, buy-side foreign currency traders in 2006 executed more than half of total global FX trading volume through electronic trading systems, according to a new report from consultancy Greenwich Associates.
“The increase in electronic forex trading activity over the past 12 months has been nothing short of remarkable,” says Greenwich Associates consultant Peter D’Amario. “In 2005, e-trading systems captured less than 30% of total reported global FX trading volumes,” he adds.
Every year, Greenwich Associates interviews approximately 3,000 users of foreign exchange around the world about their trading practices; 1,600 of them are classified as “top tier” due to their size, trading volumes and overall importance in the market. Among “top tier” users, the proportion of companies and institutions using e-trading systems jumped from 44% to 53% between 2005 and 2006, according to the firm. At the same time, the total e-trading volume generated by research participants more than doubled from a reported level of $17 trillion to over $35 trillion in 2006.
The increasing use of electronic trading in foreign exchange is not only improving the fortunes of the many competing e-trading platforms; it is also contributing significantly to the growth of the global FX market, notes Greenwich Associates. Global FX trading volume increased by approximately 17% from 2005 to 2006.
“Electronic trading systems encourage volume growth by making currency transactions easier and cheaper, by aggregating and increasing liquidity, and by extending market access to investors that otherwise would not be able to participate – especially retail investors,” explains Greenwich Associates consultant Giovanni Carriere.