Thomson Reuters Reports Modest Contraction in October FX Trading Volumes

The total average daily volume (ADV) of foreign exchange trading across Thomson Reuters platforms in October totalled $353 billion daily. The figure is lower by 3 per cent when compared to the previous month amid stagnant major currency pairs.

In contrast to last October, the figures this year are more modest with the year-on-year numbers contracting by 5.6 per cent. The industry trading volumes numbers are increasingly reliant on major central bank decisions. Since both the Federal Reserve and the ECB have stayed pat in October, the main driver for Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term, the EUR/USD, has traded in a tight range.

Looking at the breakdown for different contract types, we observe spot trading declining more sharply when compared to the broader metrics to $104 billion daily or down 4.5 per cent. Forwards, Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term, options and non-deliverable forwards have contracted by 2.7 per cent to $249 billion.

Monetary policy divergence

The month of October started on a vibrant note in terms of volatility on the foreign exchange market. The Federal Reserve December rate hike prospects have increased once more after the last Fed statement last week and the buoyant employment report that followed.

Commenting on prospective foreign exchange market moves, currency strategist at DailyFX Iliya Spivak said: “The markets are now wondering if ECB officials will opt for something relatively restrained or commit to a big-splash gesture. The former could be a broadening the range of QE-eligible assets or extending the existing effort beyond its September 2016 expiry.”

“The latter may take the form of increasing the size of asset purchases from the current €60 billion/month or even moving the deposit rate deeper into negative territory. Rhetoric hinting a preference for stronger action is likely to bode ill for the Euro (and vice versa),” he explained.

The more uncertainty there is, the more likely it is that currency market volatility will increase and lead to higher trading volumes into the year end.