In The Banker’s annual FX Poll, we focus on the interbank market and find that despite a combination of downward pressures, the FX market offers as many opportunities as it does challenges.Geraldine Lambeanalyses the results.
The 2004 triennial central bank survey of foreign exchange and derivatives market activity by the Bank for Interna-tional Settlements (BIS) revealed a big hike in FX turnover. Average daily turnover in traditional FX markets, including spot, forward and FX swap markets, in April 2004 was $1900bn. This is a 57% increase measured at the exchange rates when the BIS report was released (in March) and a 36% rise at constant exchange rates compared with April 2001, the date of the last report. This substantial rise, particularly in the spot and forward markets, more than reversed the fall in global trading volumes that occurred between 1998 and 2001.
In the face of razor thin margins, continued consolidation and the inexorable move to electronic delivery, the FX business continues to grow. The growth is driven, at least in part, by investors’ interest in FX as an asset class alternative to fixed income and equity markets and the increasingly active participation of asset managers, particularly hedge funds.
This year, The Banker’s FX Poll focused purely on the interbank market: players that are both liquidity providers and clients in the global FX space. It was a qualitative survey aimed at global heads of FX trading, in which respondents were able to remain anonymous if they wished. We asked eight questions, ranging from where the current opportunities are in the FX business and which developments would most improve respondents’ businesses, to the relative strengths of proprietary and client-related trading.
Despite spread compression and other downward pressures on the business, it is clear from the survey that there are still as many opportunities as there are challenges in FX. Equally, the survey shows that the key elements of the FX business – the ability to offer structured and complex solutions that meet new client needs, in addition to the vanilla FX products, in as seamless a way as possible – are common to all players, whatever the size or scale of their business.
- What – or where – are the current opportunities in FX?
- What are the challenges facing your business or geography?
- What developments or products would most improve your business?
- What FX products are most important in your market or geography?
- Is proprietary trading growing or diminishing as a share of the business?
- Is client-related trading growing or diminishing as a share of the business?
- Which client segment (bank, asset manager or corporate) is the largest proportion of your business?
- Which products and/or services are most popular with your ‘bank’ clients?
