BIS Survey of Global Forex Market – Some Interesting Facts

Many interesting facts have come to light in the recent triennial survey by BIS of Global Foreign Exchange market. Important amongst these are that spot transactions have grown by whopping 48% from April 2007 to April 2010. The daily turn-over of the foreign exchange market is USD 4 trillion (almost four times India’s GDP). Volume of Fx Options traded have come down while cross border transactions accounted for more than 65% of the turn-over. Another important aspect is that non-bank entities are increasingly participating in fx market.

The highlights of the BIS report are as follows:

Global foreign exchange market turnover was 20% higher in April 2010 than in April 2007, with average daily turnover of $4.0 trillion compared to $3.3 trillion.

The increase was driven by the 48% growth in turnover of spot transactions, which represent 37% of foreign exchange market turnover. Spot turnover rose to $1.5 trillion in April 2010 from $1.0 trillion in April 2007.

The growth of turnover in other foreign exchange instruments was more modest at 7%, with average daily turnover of $2.5 trillion in April 2010. Turnover in outright forwards and currency swaps grew strongly (by 31% and 36%, respectively).

Turnover in the large foreign exchange swaps segment was flat relative to the previous survey, while trading in currency options fell.

Activity was supported by the increase in trading by “other financial institutions” – a category that includes non-reporting banks, hedge funds, pension funds, mutual funds, insurance companies and central banks. Turnover with these counterparties grew by 42%, rising to $1.9 trillion in April 2010 from $1.3 trillion in April 2007.

Reflecting further foreign exchange market globalisation, cross-border transactions represented 65% of trading activity in April 2010, the highest share ever.

The relative ranking of foreign exchange trading centres changed slightly from the previous survey. Banks located in the United Kingdom accounted for 37% of all foreign exchange market turnover, against 35% in 2007, followed by the United States (18%).

Growth in the positions of OTC foreign exchange instruments was moderate at 9%, compared with an increase of 83% in notional amounts outstanding of currency instruments in the 2004-07 period.

In contrast, market values of these instruments almost doubled against a backdrop of increased financial market volatility during mid-April and early June 2010.

Trading activity with other financial institutions also drove the increase in the global foreign exchange positions. Their share (45%) surpassed transactions with reporting dealers (36%) for the first time in 2010.