FX volume grew in 2008

According to a report released in April by Connecticut-based financial advisory firm Greenwich Associates foreign exchange volume has increased by 15% from 2007 to 2008. The growth is surprising considering the 28% contraction of hedge fund activity in the forex market last year. Volume generated by hedge funds nearly tripled from 2006 to 2007, and at the time represented 20% of total global forex volume. However, trading volume generated by other market participants increased, including a 43% jump in the retail space and 21% growth by pension funds. Electronic foreign exchange volume received a boost in 2008 as well, growing 37% year-over-year to comprise 53% of total global exchange volume. The report attributes much of the growth to an influx of investors seeking liquid markets and a ‘plain vanilla’ asset class. However, it also claims bid-ask spreads have increased. And despite the argument investors may have fled the turmoil in other markets across the globe, the forex market hasn’t remained unaffected in this respect. Higher volatility and fewer dealer desks have widened spreads, and growing concerns over counterparty risk have made dealers wary of doing business with each other. So are we likely to see conditions worsen for retail traders that are used to getting better offers from year to year? We shall see what will drive the trading retail market.