The Bank for International Settlements released its triennial survey on the foreign exchange markets last night and among the mounds of all of the interesting numbers (interesting to those of us who care about forex) were some trends worth noting. For starters, spot trading was up nearly 50% – and that was driven by the traditional trading between banks but even more so by trading by hedge funds, pension funds and mutual funds, among those characterized as “other financial institutions.”
So, proprietary trading was in full force at the banks – which we know has been a profit center in recent quarters for some firms. And we continue to see the larger role played by institutions like hedge funds.
Foreign exchange swaps, which remain the largest sector of the forex market, were flat. Banks showed modest growth and that in and of itself tells a fascinating story. When the last survey was taken (April 2007), it was several months before the money markets began to seize. And that event created turmoil in the forex swaps markets, where banks seek liquidity. Then a year later, Lehman Brothers failed and that sent the fx swaps market into another tailspin. The BIS numbers seem to indicate that this important corner of the market has returned to pre-crisis levels.
Also, in terms of swaps, there was roughly 10% growth in that “other financial institution” category, which could reflect hedging positions by funds. Finally, a decline by companies, which makes sense because if they are selling fewer products (as was the case during the recession), they have less of a need to hedge.
Click here for full BIS survey.