Author: Denise Bedell
Project Coordinator: Alessandro Magno

By Denise Bedell – Project Coordinator: Alessandro Magno

Global Foreign Exchange Market Turnover By Instrument (US$ billion)

According to the Bank for International Settlements (BIS), the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity is intended “ to provide the most comprehensive and internationally consistent information on the size and structure of global foreign exchange markets, allowing policymakers and market participants to better monitor patterns of activity in the global financial system”.

It surveys turnover in the over-the-counter (OTC) foreign exchange and interest rate derivatives markets and is undertaken every three years by global central banks, under the coordination of BIS.

Over-the-counter (OTC) or off-exchange trading involves the trading of financial instruments or commodities—in this case currency--directly between two parties. It differs from exchange-trading , wherein trading occurs through a facility built for the purpose of trading—namely an exchange.

Global foreign exchange turnover in the OTC markets grew by 20% since 2007. Average daily turnover rose from $3.3 trillion to $4 trillion. This was a much smaller growth rate than that seen between 2004 and 2007—when the market for OTC foreign exchange trading grew By a record 72%, thanks to such factors as low volatility in the foreign exchange markets and the high growth rate of hedge funds.

Growth between 2007 and 2010 was largely driven by expansion of trading by “other financial institutions”, according to BIS, which includes non-reporting banks, hedge funds, pension funds, mutual funds, insurance companies and central banks.

In contrast to the average growth rate of 20%, growth in trading volumes for “other financial institutions” grew at a rate of 42%--to $1.9 trillion in 2010 from $1.3 trillion in 2007. This was the first time, since the survey began in 1989, that trading conducted by other financial institutions surpassed trading by reporting dealers.

Instruments Traded

A spot transaction is defined as a currency transaction processed “on the spot” or immediately, and settling in the respective financial institutions within one or two business days after trade date, according to US Bank.

The International Swaps and Derivatives Association (ISDA) defines an FX Swap as a spot currency transaction that will be reversed at a predetermined date with an offsetting forward transaction, where the two are arranged as a single transaction.

The most highly-traded instrument in terms of market volume in the global OTC foreign exchange market is the FX swap—which had average daily turnover of $1.77 trillion in April 2010, followed by spot transactions—with daily turnover of $1.49 trillion.

Financial Crisis

During the global financial crisis of 2007-2009, foreign exchange volatility grew dramatically, and foreign exchange risk management became a central focus for financial institutions, corporations, and other market stakeholders.

Hedging of FX risk continues to be a central focus for companies with exposures to foreign markets, particularly as global economic conditions have yet to fully stabilize.

While overall turnover grew, OTC FX trading between reporting counterparties and their non-financial customers—such as corporations—fell from $593 billion average daily turnover in 2007 to $533 billion in 2010, and went from a market share of 18% of the overall OTC foreign exchange market down to 13%, over the same period.

Non-financial customers saw drops in the use of every type of instrument covered by the survey.

Global Foreign Exchange Market Turnover By Counterparty
Total with reporting dealers 2010 39%
Total with other financial institutions 2010 48%
Total with non-financial customers 2010 13%

Global Foreign Exchange Market Turnover - Local Versus Cross-Border
Local 2010 35%
Cross-border 2010 65%

Data is from the Bank for International Settlements Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, September, 2010.

Click on the column heading to sort the table.

Global Foreign Exchange Market Turnover By Instrument, Counterparty And Maturity