Foreign Exchange daily trading volume to hit $3 trillion by 2007

New research from TowerGroup finds that by 2007, global Foreign Exchange daily average volumes will exceed US$3 trillion, with more than 44% of transactional volume conducted electronically. This is an increase from US$1.77 trillion daily volume in 2004.

FX trading is still dominated by the large dealing banks, yet exchange-like models fueling a bid-and-offer market are challenging the traditional request for quotes. With the appearance of new execution venues, it has become easier for traders to enter the FX market and reduce the risks associated with these transactions.

Highlights of the research include:

  • Technology, culture, and methodology have shifted FX trading from the telephone to the desktop keyboard. Electronic foreign exchange (e-FX) has increasingly become the method of choice for market participants.
  • Hedge funds have had a considerable impact on all asset classes, and TowerGroup expects they will continue to be the driving force for technology innovation in the FX marketplace.
  • TowerGroup expects consolidation of FX execution venues to occur over the next two to three years. TowerGroup estimates that only two or three will remain once the consolidation dust settles.
  • FX electronic communication networks (ECNs) represent the next stage in the evolution of the FX markets and will become the platform of choice for traders that treat FX as an asset class.

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