Institutional interest in foreign exchange is tailing off around the world, except in the United States, according to research firm Celent.
Growth is slowing down for the first time in six years, according to a report prepared by analyst Sreekrishna Sankar.
Despite a widespread shift to electronic trading in the past decade and the emergence of technical platforms that cater to institutions, near-zero interest rates and fears of recession in many parts of world are causing banks and asset managers to pull back from foreign exchange trading.
The result: Volume is at $4.3 trillion a day this year, down from peak of $4.7 trillion in October, Celent says.
This remains above 2010 levels. But the only country where volumes are up is the United States, which is showing what Celent calls a “minimal increase.” All other parts of the world are showing a drop in volume from 2011.
Economic crises in Eurpe and elsewhere are slowing FX growth. The biggest drop is in spot markets, Celex said. That is where investors had begun to treat foreign currencies as a new asset class, representative of the strength of different economies.
The biggest drops have been in what Celent calls the dealer-to-client (D2C) segment of the business, because of the pullback by banks and buyside institutions.
The interdealer market also is not growing, Celent said. And the boost that high-frequency trading that has been a “key driver” of FX volume growth is not driving new peaks in 2012.
The slowing growth comes, Celent says, as manual trading firms and those that use algorithms, but not in high-frequency fashion, struggle to compete in the high-speed trading that now characterizes the market.
Celent said it expects an increase in competition in the dealer-to-client spot market and new platforms to serve institutions to emerge.
It also expects growth in single-dealer platfroms, outside of the top three bank platforms. Technology costs are falling, it said, but sustained investment will be needed to continue growth.
