New Greenwich Report Finds e-FX Growth Driven by North America, Retail Aggregators

Almost three quarters of global foreign exchange trading volumes (74%) were executed through electronic systems last year, up from 71% in 2012, according to a new report, As e-FX Market Matures, Incremental Growth Driven By Smaller Institutions, from Greenwich Associates that analyzes trends in non-interbank, client-generated FX trading volumes.

Geographically, the world’s largest and arguably most mature FX market, Continental Europe, was the only region to notch a meaningful decline in the share of foreign exchange volume executed electronically last year, as a modest increase in online volume failed to keep pace with a bigger jump in total FX trading volume and e-FX fell to a total 68% from 73%.

Usage in the United States was essentially unchanged at around 83% of market participants, but e-trading users made some dramatic increases to the share of their business routed through electronic systems. That shift pushed e-FX to 73% of total U.S. FX trading volume in 2013 from 63% in 2012.

Outside of Japan, online FX trading made little headway in Asia last year. Although the absolute amount of FX volume executed through electronic systems increased in Asia ex-Japan last year, that gain failed to match the growth in overall FX trading volume over the 12-month period, and electronic systems usage was flat at 57% of market participants.

Japan remains a classic tale of two markets. On the surface the Japanese FX market appears to be by far the world’s most electronic, with 87% of total FX trading volume executed through electronic systems. However, the vast bulk of that e-FX business is generated by the relative handful of retail aggregators that play such a large role in that market. Excluding retail aggregators, e-FX’s share of total Japanese FX trading volume actually contracted by 10 percentage points last year to just 45%.

Drivers of e-FX Growth
Among many of the large institutions that generate the bulk of FX client trading volume around the world, the rapid uptake and growth that have characterized e-FX for the past decade show signs of slowing. “As evidenced by last year’s growth, the e-FX market has not yet lost its dynamism,” says Greenwich Associates consultant Peter D’Amario. “Instead, electronic trading is simply making new headway among smaller FX players and the market’s most active traders.”

Much of e-trading’s gains last year can be attributed to the activity of retail aggregators, which increased their share of trading volume executed electronically to 98% in 2013 from 92% in 2012. This shift dramatically impacted the industry as a whole, given that retail aggregators generated 23% of overall FX trading business around the world last year. Removing these huge players from the equation, e-FX captured two-thirds of global FX trading volume last year, up only a single percentage point from 2012.

At the other end of the spectrum, electronic trading platforms continued to attract new customers last year from the ranks of market participants generating less than $50 billion in annual FX volume. These gains were largest among companies and institutions generating less than $1 billion in annual trading volumes—a group that in the past saw little potential benefit in e-trading due to low levels of activity. Electronic FX trading uptake in this segment jumped seven percentage points to 48% of market participants in 2013 pushing the share of total volume executed electronically among this group to 26% from 22% in 2012.