London FX Volume Shrinks to $2.41 Trillion, Secures 37% Share on Global Trading

Daily foreign exchange trading volumes out of London have shrunk by 12 percent in the past three years to $2.41 trillion, the Bank of England said in its latest triennial report on the FX market. The report prompts warnings that the currency markets are becoming more volatile, due to lower Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, and prone to events such as the sterling flash crash in October.

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Earlie this week, the Bank for International Settlements (BIS) reported the first fall in the world’s FX volumes in more than 16 years, which dropped to an average daily volume of $5.1 trillion, from $5.4 trillion in the same period three years ago.

Although the market shrinkage was a particular blow for London, the City remains the world’s biggest currency trading hub, responsible for 37 percent of global volumes. However, London’s lead in the global currencies trading was eroded to the aforementioned figure from a nearly 41 percent share in 2013.

According to the survey, which was conducted before the June 23 Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term vote, London has also been hampered by the sickly appetite for major currencies like the dollar and euro which typically dominate City trading, with more US dollars traded in London than in New York.

The latest data shows that currency volumes have picked up since Brexit but the UK capital will struggle to regain ground in the wake of the event, which may compromise its position in euro trading, and which will probably put off overseas banks from setting up a base in the city.

"The decline in the United Kingdom's total market share is consistent with the overall decline in spot turnover and hedge fund activity, which have traditionally been based in London. The survey also indicated reduced trading in major currencies, an activity traditionally concentrated in London, and increased appetite in so-called emerging market currencies typically traded most heavily in their respective regions," the BoE said.

According to the survey, one factor that may be depressing trading volumes is that the industry has been hit over the past three years by changes in regulations, as well as market-rigging scandals which triggered extensive investigations. The financial watchdogs’ crackdown not only resulted in huge fines to several banks and ended the careers of dozens of traders and sales people, but also left investors much more reticent to trade.

The BoE added that spot turnover, the most basic end of the market, fell 24 percent year-on-year to $784 billion a day, more than 75 percent of the overall fall in FX trading volume.

Finally, hedge funds were also suffering into the background. While they accounted for 12 percent of the market in 2013, their market share has now slipped to 7 percent, whilst their overall volume fell by more than 50 percent to $164 billion per day.