This is proving to be a banner year….
NEW YORK (Dow Jones)–This is proving to be a banner year for volumes among foreign exchange retail investors, even as institutional traders say 2009 will pale in comparison to the striking growth seen in 2008 and 2007.
Volumes on dbFX, the online retail trading platform from Deutsche Bank, increased 37% in the first quarter of 2009 from the same period a year earlier. Compared to the fourth quarter of 2008, volumes jumped 4% in the most recent period. The latter rise was particularly impressive given sharp volume gains in October, at the height of market fears, when retail investor interest spiked due to intensified volatility.
Other retail platforms have anecdotal revealed the same trend, from big Citigroup to the smaller Global Forex Trading. Increasingly, investors are taking advantage of financial market instability through currency trading, although many warn that the market is too volatile for most non-professional traders.
“More and more people are leaving the equities market and coming into foreign exchange, as foreign exchange is a non-correlated asset over the long term,” said Betsy Waters, global director of dbFX.com.
Euros, dollars, pounds, Turkish lira – none rise and fall alone. Their values fluctuate in reference to another currency. This means no matter what is going on in equities or commodities markets, traders can make a buck by betting on some currency out there. This is especially worthwhile to investors in countries that forbid betting against an asset.
This has proven useful in a year when investors have to maneuver around falling commodities and stocks, and may be searching to diversify.
But part of the rise in retail volumes is also attributable to the fact this sector is relatively new. dbFX itself launched in June 2006. Volumes on dbFX between 2007 and 2008 increased by two-and-a-half times, according to Waters.
On the institutional side, analysts have said it will be hard for foreign exchange teams to compete in 2009 with the volumes they grossed in the previous years.
In addition, the train of thought is different between these two sides.
For instance, the heightened volatility at the end of 2008 was considered too treacherous for bankers. Actual position-taking among these players has been thinner than in previous years since the breakdown of Lehman Brothers and Bear Stearns sent fear through the market. Traders have more rules on who they can deal with. The crisis has also led many houses to disable algorithmic trading models, which had been big volume drivers. In addition, currency market flows in the institutional investor space can change for any number of reasons, like hedging strategies or just a need to move money.
However, trading trends observed at dbFX are not unlike those among larger investors.
Traders moved away from the carry trade, where they were chasing interest rate differentials, in favor of chasing trends. The pairs with the most volumes were the majors – euro-dollar, U.K. pound-dollar and dollar-yen.
-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; riva.froymovich@dowjones.com
Tags: algo trading, dark fiber, Electronic Trading, Fiber Networks, Forex, Low Latency, Low Latency Networks