The downturn in market volatility is impacting currency trading desks, leading to reduced margins for banks and slowing the recovery following the economic turbulence of the Covid-19 pandemic. BCG Expand Research reported that revenue from foreign-exchange trading within the top 100 banks fell 15% during the first half of 2023. If this trend persists, it could be the second revenue decline in three years.

FX Trading Desks Lose Billions through Drop in Volatility

A recent decrease in trading activity has been observed in banks like Goldman Sachs Group Inc. and BNP Paribas SA, contributing to lower results in areas, such as fixed income, currency, and commodities. Moreover, Goldman cut hiring for the third time in May due to the market slowdown.

This is partly because the decrease in currency volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders Read this Term has impacted comparisons with previous years, following events like Russia's invasion of Ukraine and major central bank adjustments. Current mixed economic data and the shift of central banks into a more observant role have left traders uncertain, leading to reduced currency swings and tighter margins.

Uncertain macroeconomic conditions have led some clients to pull back from the currency trading market, leading to a decline of 7% in spot FX volumes in the first half of 2023, as cited by Expand. Specific client activity has seen varying changes: hedge fund activity has decreased 3%, real money activity remained stable, and corporate client volumes have increased 6%.

These fluctuations in client activity illustrate the current instability in the currency trading environment, reflecting broader uncertainties in the global economic landscape. Additionally, increased electronic trading has had an effect and a decline in client participation in the market.

In the first six months of 2023, banks' FX revenues totaled $31.3 billion, which is down from $36.9 billion in the prior year. Last year was overall a record year for banks, when they earned $66.6 billion from forex operations, compared to the previous record of $65.2 billion in 2022

However, some Latin American currencies have shown robust growth in traded volumes, particularly the Brazilian real, Chilean peso, and Columbian peso, each growing 10-20% during the year's first half.

Institutional Spot FX Activities Return Mixed Performance

The figures from institutional spot foreign exchange trading during July confirm the thesis presented in the first part of the article. Various trading platforms like Cboe FX, Deutsche Börse's 360T, FXSpotStream, and Click 365 reported mixed outcomes. These recent statistics are consistent with prior data, further validating the observed trends.

In the U.S., Cboe FX, a prominent platform for spot forex trading Forex Trading Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying Read this Term, saw its total volume dip by 4% to $922 billion, which is down from $965 billion a month earlier. FXSpotStream, a provider located in New Jersey offering multibank price streaming for FX spot and swaps, witnessed a similar decline of 1.2% to $1.37 trillion, which is down from $1.39 trillion seen in the previous year.

Over in Europe, Euronext FX, a leading electronic network for spot FX trading, experienced a reduction of 4% to $492 billion, as the Euronext-operated platform reported a decrease in institutional demands, with volumes falling from $514 billion.

Moreover, total volumes for spot and derivatives trading on centralized exchanges (CEXs) also saw a slump of 12% to $2.36 trillion in July, marking the lowest monthly trading volume so far this year. This information is based on the most recent exchange review report from CCData, a provider of digital assets data.