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Electronic Trading Systems Capture One Half of Global FX Volume
( Greenwich Associates )
(April 10, 2007)

E-trading Technology Brings Retail Investors to Foreign Exchange Trading

Tuesday, April 10, 2007 Greenwich, CT USA - For the first time, "buy side" foreign currency traders in 2006 executed more than half of total global FX trading volume through electronic trading systems, according to a new report from Greenwich Associates.

"The increase in electronic forex trading activity over the past 12 months has been nothing short of remarkable," says Greenwich Associates consultant Peter D'Amario. "In 2005, e-trading systems captured less than 30% of total reported global FX trading volumes."

Every year, Greenwich Associates interviews approximately 3,000 users of foreign exchange around the world about their trading practices; 1,600 of them are classified as "top tier" due to their size, trading volumes and overall importance in the market. Among "top tier" users, the proportion of companies and institutions using e-trading systems jumped from 44% to 53% between 2005 and 2006. At the same time, the total e-trading volume generated by research participants more than doubled from a reported level of $17 trillion to over $35 trillion in 2006.

The increasing use of electronic trading in foreign exchange is not only improving the fortunes of the many competing e-trading platforms; it is also contributing in a significant way to the meaningful growth of the global FX market (global FX trading volume increased by approximately 17% from 2005 to 2006). As Greenwich Associates consultant Giovanni Carriere explains: "Electronic trading systems encourage volume growth by making currency transactions easier and cheaper, by aggregating and increasing liquidity, and by extending market access to investors that otherwise would not be able to participate - especially retail investors."

Shifting Attitudes Toward Electronic Trading
In last year's report on the foreign exchange market, Greenwich Associates predicted that these benefits would entice e-trading hold outs to experiment with electronic trading. The prediction held true: As a growing number of FX users moved to electronic trading, the proportion stating that they have no plans to ever trade FX electronically dropped to 36% in 2006 from 43% the prior year. "These results suggest an important shift in attitudes toward e-trading," says Greenwich Associates consultant Frank Feenstra. "For several years, the FX market was essentially evenly split between e-traders and abstainers. This year it seems the tide has turned - users that in the past have spurned e-trading systems are becoming converts."

Even as latecomers embrace electronic trading, earlier adopters are ramping up their activity significantly. In 2005, users of e-trading systems told Greenwich Associates they executed 53% of their total foreign exchange trading volume through e-trading systems. In 2006, that share jumped to 60%, and e-traders say they expect to be conducting 63% of their total FX trading business electronically in 12 months' time.

E-trading systems have achieved their highest levels of penetration in Europe, where 60% of FX users now trade electronically. Half of FX users in North America trade electronically, but that average number spans a deep divide between the practices of U.S. and Canadian users. Sixty-one percent of FX users in the United States trade currency electronically, as compared with only 22% of those in Canada. Trailing North America in e-trading adoption is Asia, where only 41% of FX users trade electronically. Here too, however, the regional average encompasses wide variation. In Japan, for example, only about a third of FX users trade electronically. In the rest of Asia, that share is 50%, and the data suggest that this gap will only widen in coming years.

Electronic Systems Bring Retail to the FX Party
Trade flows generated by retail investors are making up a growing share of the global FX market - a phenomenon made possible by the newly pervasive reach of electronic trading platforms. Greenwich Associates research suggests that retail trade volumes appear to be growing steadily, as indicated by the growth in volumes of retail aggregators and other financial institutions. Retail trading flows to the global market through "retail aggregators" - companies that extend market access to retail traders - and bank retail networks. Both businesses reach their retail customers and transact their trades primarily through electronic systems. As Peter D'Amario explains: "One of the reasons that FX trading volumes have grown so rapidly and so consistently over the past several years is that new technology has allowed an entirely new customer base to enter the market - for better or for worse."

For more information contact:
Joan Weber
+1 (203) 625 4354

Greenwich Associates is the leading international research-based consulting firm in institutional financial services. Greenwich's studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Greenwich, Connecticut, with additional offices in London, Toronto, and Tokyo, the firm offers over 100 research-based consulting programs to more than 250 global financial-services companies. Please contact us for further information or to arrange an interview with one of our consultants. You can visit our website,, for more information.



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