Electronic Currency Trading Now Dominates
LONDON -(Dow Jones)- Electronic trading is now the standard way for banks' clients to execute deals in the currency markets, according to a report from Greenwich Associates released Tuesday.
Last year, so-called buyside traders like investors and companies executed more than half of their currency business electronically for the first time, the Greenwich, Conn.-based consultancy said in its annual survey.
"The increase in electronic forex trading activity over the past 12 months has been nothing short of remarkable," said Greenwich Associates consultant Peter D'Amario. In 2005, under a third of all reported currency flows from buyside clients was executed electronically, the firm said.
The report said this rise in electronic trading is contributing to the currency markets' overall growth by making it easier and cheaper to trade and by making access available to a wider range of participants.
The consultancy said that overall foreign exchange trading volumes climbed by around 17% from 2005 to 2006, although it doesn't say what the total is now. It said the total electronically-traded volume by the survey's participants has doubled to $35 trillion in 2006 from the previous year.
The survey, based on interviews with around 3,000 foreign exchange clients, found that enthusiasm for electronic trading isn't seen evenly across different client types and locations.
Among the biggest 1,600 clients in the survey, 53% used electronic trading systems in 2006, up from 44% in 2005. The percentage of clients using electronic trading is 60% among financial clients, including hedge funds and other investors.
But it's 40% among companies, and nearly half of companies still have no intention to use electronic trading channels.
"Many corporates might feel they do not trade frequently enough or in sufficient volume to warrant the investment of money or time required to get up and running on an e-trading platform," the report said.
There are also geographical differences. The report said that 60% of users in Europe trade electronically, while the proportion is roughly half in North America, albeit with much heavier electronic trading in the U.S. than in Canada.
In Asia, only 41% of foreign exchange clients trade electronically, although again, that figure is lower largely because of low rates of electronic trading in Japan.
Third-party trading systems that pool prices from a range of banks are still significantly more attractive to clients than single-dealer systems, the report added, although a quarter of clients now use both types of systems, up from 16% in 2005.
"We believe that third-party multi-dealer systems will continue to dominate trade flows," said Woody Canaday, an analyst at the firm.
The report added that new types of electronic trading, such as styles based on computer programs and exchange-type trading, are likely to become more significant for the market in coming years.
It also highlighted that retail investors are responsible for a growing share of the foreign exchange market, largely as a result of the better trading technology available to these types of clients.
"One of the reasons that FX trading volumes have grown so rapidly and so consistently over the past several years is that new technology has allowed an entirely new customer base to enter the market - for better or for worse," said Greenwich Associates' D'Amario. |
