Nearly 75 percent of all foreign exchange trading was executed electronically in 2013, up from 71 percent in 2012.
Following the lead of global equities, the forex market has firmly shaken the old ways of trading via telephone and embraced the electronic age of algorithms, order routers and high speed networks.
This electronification has been seen mostly in North America and among global retail aggregators, that’s according to a new report from Greenwich Associates. In its new repot, “As e-FX Market Matures, Incremental Growth Driven By Smaller Institutions,” the consultancy analyzes these trends in non-interbank, client-generated forex trading volumes.
Geographically, the world’s largest and arguably most mature FX market, Continental Europe, was the only region to notch a meaningful decline in the share of foreign exchange volume executed electronically last year, the report noted. In Europe, a modest increase in online volume failed to keep pace with a bigger jump in total FX trading volume and e-FX fell to a total 68 percent from 73 percent.
However, electronic trading in the United States was essentially unchanged at around 83 percent of market participants, but e-trading users made some dramatic increases to the share of their business routed through electronic systems. That shift pushed e-FX to 73% of total U.S. FX trading volume in 2013 from 63% in 2012.
Outside of Japan, online FX trading made little headway in Asia last year. Although the absolute amount of FX volume executed through electronic systems increased in Asia ex-Japan last year, that gain failed to match the growth in overall FX trading volume over the 12-month period, and electronic systems usage was flat at 57% of market participants.
But in Japan, the FX market appears to be by far the world’s most electronic, with 87 percent of total FX trading volume executed through electronic systems. However, the vast bulk of that e-FX business is generated by the relative handful of retail aggregators that play such a large role in that market. Excluding retail aggregators, e-FX’s share of total Japanese FX trading volume actually contracted by 10 percentage points last year to just 45%.
“As evidenced by last year’s growth, the e-FX market has not yet lost its dynamism,” said Greenwich Associates consultant Peter D’Amario, while noting slower overall growth in forex globally. “Instead, electronic trading is simply making new headway among smaller FX players and the market’s most active traders.”
He added that much of e-trading’s gains last year can be attributed to the activity of retail aggregators, which increased their share of trading volume executed electronically to 98 percent in 2013 from 92 percent in 2012. “This shift dramatically impacted the industry as a whole, given that retail aggregators generated 23 percent of overall FX trading business around the world last year. Removing these huge players from the equation, e-FX captured two-thirds of global FX trading volume last year, up only a single percentage point from 2012.”
At the other end of the spectrum, Greenwicch said that electronic trading platforms continued to attract new customers last year from the ranks of market participants generating less than $50 billion in annual FX volume. These gains were largest among companies and institutions generating less than $1 billion in annual trading volumes-a group that in the past saw little potential benefit in e-trading due to low levels of activity. Electronic FX trading uptake in this segment jumped seven percentage points to 48 percent of market participants in 2013 pushing the share of total volume executed electronically among this group to 26 percent from 22 percent in 2012.
