Why has the volume of fores trading gone up?

In 2010, a triennial report released by the Bank of


International Settlements said that the daily volume of foreign exchange trading was USD4.1 trillion. This was a


28% growth rate since 2007.

More recently, CLS


Bank released figures saying that the daily volume of


foreign exchange trading reached USD5.12 trillion in June


2011, breaking a previous record set in March 2010. This turnover was


Twenty p.c. higher than the same time last year.

 So why has there been


a rise in foreign exchange trading?

 The 28% increase


between 2007 and 2010 was partially credited to the


world financial crisis: as stock exchanges fell in 2008, the forex market became more popular . As currencies are


always traded in pairs, one will always be moving against another,


giving the opportunity for traders to


profit at any point, financial crisis or not.

 As for the 2011


increase, this has been attributed to the Greek crisis, as the near default increased trading on the unsteady euro.


And, although the austerity vote was passed, talks about a 2nd bailout program are still happening. Setting Greece apart, eurozone members


Portugal, Italy, Ireland and Spain also have high sovereign debt


proportions, with expectancies that Italy could be the


next to suffer following the spike in Italian bond yields on July 8, 2011.

 Another


reason for the record volume of foreign exchange


trades is the press conference held by Ben Bernanke on June 22,


2011, in which he conceded US weakness and announced


that the Fed had reduced the midpoint of


its 2011 GDP outlook growth range to 2.8% ( in


Jan it was 3.7% ), alongside enlarging its


end-2011 outlook unemployment and inflation rates. He


also announced that the 2nd round of


quantitative easing would expire at the end of the


month, and that was not likely to be followed by a 3rd round.

 Following the press


conference there was a swift fall in stock costs matched by


a rise in the USD.

 But the June rise in forex trading is not characteristic, as the


Northern Hemisphere's summer months are


sometimes a slow trading period. So it will be fascinating to see what Sep holds, as


this is historically the time when market


participants return from their summer


holidays. And it is also when the next tranche of aid will


be paid to Greece. This means that, even if the


currency market slows over the following


2 months, it is likely to come back with a


bang.    









Remember that CFDs and forex are leveraged products and can result in losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.