The world of FX trading is growing in terms of trading volumes and participation, according to the last BIS FX Survey, where average daily trading volumes crossed $5 trillion, from $4 trillion traded in 2010. However, industry professionals have been feeling the brunt of a downsize in activity where several major venues, such as EBS and CME saw trading volumes drop below the all important $100 billion a day mark.
On the bright side is the growth and opportunity in emerging market FX trading (EMFX), the rise of giants such as Russia, India and China on the global economic scene have given FX professionals a new positive feeling, daily volumes in EMFX pairs are on the up. Much in the same fashion, one may point out that emerging national teams in the current football World Cup have also transcended and made for an exciting second phase of the world’s most followed sporting competition.
Chinese Yuan Shines
In the world of FX derivatives, the Chinese yuan (CNY) has been leading the pack in the emerging segment, trading volumes have increased significantly with the yuan entering the top ten most active currencies traded, and the CNY jumped from the 17th most active cross in 2010 to 9th place in 2013, with 2.2% market share, according to the Bank of International Settlements (BIS) 2013 Triennial survey. Furthermore, the USD CNY contract is the 8th most traded dollar cross, with over $113 billion in ADV, the EUR CNY contract has also gained traction, although figures are low compared to dollar transactions, the EUR CNY contract trades $1 billion a day.
Chinese FX futures have also been on the rise, the first contract was launched in Hong Kong with positive uptake by traders. The Singapore Exchange (SGX) has recently reported that it will offer RMB derivatives contracts in Q3 of 2014.
Founder of R5, Jon Vollemaere, an EMFX focused firm, commented to Forex Magnates: “EMFX will play a greater role in the make-up of global FX trading, it’s only a matter of time when the rupee or the rouble will hold onto the top position.”
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The global economy is facing its biggest change since the 2nd World War, with new markets such as the BRICS and the Next-eleven shaping the modern business environment as they absorb wealth, investment and prosperity, a number of emerging market nations have seen economic growth cross the formidable 5% mark.
In addition, the migration from frontier to emerging market status for the UAE and Qatar saw record moves in the country’s benchmark stock index. The same notion is seen in currency markets, several currencies having stepped up their daily trading volumes, including China, Russia, India, Brazil and Mexico.
EMFX is expected to continue to grow as more participants trade the crosses, additionally, the number of brokers offering the EMFX crosses continues as client demand grows. Thomson Reuters reported record volumes in January, where the venue saw $197 billion in daily volumes, the Chinese yuan was the 7th most active pair at the interbank dealer. Chandan Singh, a sales trader at TNC Markets explained: “More and more clients ask for the rupee or the yuan, interest in these currencies is growing.”
The largest FX centers have had a difficult event. In the last BIS FX report, London held on to top spot as the largest financial center for FX trading, however England failed to keep its place in the competition, as was the case with Japan, with only the USA keeping global FX on the footballing map.
Volumes have been a concern for brokers and banks in the current low volatile trading environment, with declines of over 30% seen at some execution venues in April, and a continuation of poor metrics in May.
Tonight all eyes are on the all inclusive South American encounter with Brazil playing Chile, kicking off at 5pm BST, with the battle of Barcelona Premier’s Neymar and Sanchez, to be followed by Colombia vs Uruguay at 9pm BST.
While it is still unknown who the next world champion will be, it is already clear that the story of this World Cup is the success of the small ones, when teams like Costa Rica and US have taken the place of traditionally strong national teams such as Italy, England and Portugal. “The underdogs have made their mark,” John Vicars, Chief Operating Officer at Derby County Football Club, stated to Forex Magnates. Should we expect a similar trend on the financial sphere as well?