The global foreign exchange market continues attracting both institutional investors and individual traders. Forex traders are not discouraged by the drop of the Forex volatility to its all-time lows, or by the increase in the negative debt market volume up to $17 trillion, or by the horror stories that about 90% of beginner traders go bankrupt.
According to the Bank for International Settlements, trading in the global foreign exchange market has jumped to the highest-ever level at $6.6 trillion. This is about 30% higher than $5.1 trillion recorded in 2016.
The U.S. dollar remains the world’s preeminent currency. The greenback is rightly called the King as it is on one side of 88% of all trades. The share of trades involving the euro increased to 32%, from 28%; while the yen slipped to 17% from 22%.
The eight most traded currencies include the British pound (13%), the Australian dollar (6.8%), the Canadian dollar (5%), the Swiss franc (5%), and the Chinese yuan (4.3%). Renminbi, by the way, is the most progressive currency in Forex.
In 2016, it was involved in 3.7% of Forex operations, in 2013 - 2.2%, in 2010, it accounted for 0.9% of all exchange operations. I should remind you that any currency pair always includes two currencies, so, the total value is 200%.
In general, emerging markets currencies’ look quite promising reaching 25% of overall global turnover, which is just a little less than the euro, being the second most traded currency. In my opinion, it is associated with the low volatility and increasing popularity of the carry trades.
If someone worries that London will lose its status as the world’s trading center due to Brexit, this is in vain. The UK capital, on the contrary, has strengthened its position, accounting for 43% of all activity, which is 6% up from that in 2016, while New Your (17%) has lost 3%.
The 5 largest forex trading centers also include Singapore (7.9%), Hong Kong (6.7%), and Tokyo (6.1%). I believe that London has only benefited from the Brexit uncertainty, instead of losing its dominance.
The most rapidly progressing Forex segment is derivatives, primarily cross-currency swaps that allow hedging against changes in the foreign exchange rates and interest rates.
The UK market accounts for 50% of the global derivatives market, up from 38% in 2016. The share of euro-denominated swaps traded in London has been up to 86% from 75%.
The largest market-makers in Forex are JPMorgan Chase & Co (9.8%), Deutsche Bank AG (8.4%), and Citigroup Inc (7.9%). It is remarkable that Deutsche Bank, as Germany in general, is losing its leadership in the global market share. In 2007, its share in forex operations was 19.3%.
I, personally, believe that the Forex is gaining popularity amid the large monetary easing packages used by the world’s leading central banks. Cheap liquidity provided by the Fed, the Bank of Japan, and the ECB encourage investors to buy much more assets in different countries.
I don’t think that the situation will radically change amid the global GDP slowdown and the willingness of the major central banks to take every step to save the national economies from recession. Forex trading volume, as well as the number of new traders, should be increasing. Take your chance! Continue reading with Litefinance.com...