Forex – Your Way To Success

Forex – Your Way To Success

The number of people who want to join the army of traders and the volume of operations in the foreign exchange market is growing by leaps and bounds

The international currency market, like forbidden fruit, continues to attract both institutional investors and individual traders. Neither a drop in Forex volatility to historical lows, nor an increase in negative bond yields to almost $ 17 trillion, nor terrible stories that more than 90% of new traders lose money do not stop players. According to a study by the Bank for International Settlements, in April 2019, daily trading on the foreign exchange market rose to a new all-time high of $ 6.6 trillion. This is almost 30% more than in 2016 when it came to $ 5.1 trillion.

The American dollar does not give reason to doubt its dominant position on Forex. Greenback is not in vain called the king of the foreign exchange market – it accounts for 88% of all conversion operations. The share of the euro increased from 28% to 32%, the Japanese yen – decreased from 22% to 17%. The eight most traded currencies also include the British pound (13%), Australian (6.8%) and Canadian (5%) dollars, Swiss franc (5%) and Chinese yuan (4.3%). Renminbi, by the way, is the most progressive currency on Forex. In 2016, it accounted for 3.7%, in 2013 – 2.2%, in 2010 – 0.9% of the volume of all conversion operations. It should be noted that the two currencies are always present in the pair, so the total indicator is 200%.

The dynamics of the share of major currencies on Forex

Source: Bloomberg.

In general, all the monetary units of developing countries look very attractive. Their share has grown to 25%, and this class of assets comes on the heels of the euro coming in second place. In my opinion, this is due to low volatility and the growing interest in carrying trade operations.

If someone was worried that due to Brexit, London would lose the status of the main financial center, then it is completely in vain. The capital of Foggy Albion, on the contrary, has consolidated its position: its share in the total volume of conversion transactions in the foreign exchange market since 2016 increased by 6 pp to 43%, while New York (17%) lost 3 pp TOP-5 also includes Singapore (7.9%), Hong Kong (6.7%) and Tokyo (6.1%). In my opinion, Britain’s divorce from the EU, instead of playing a cruel joke with London, extended a helping hand to him. The fastest-growing Forex segment is derivatives, primarily currency interest rate swaps, which allow hedging (insuring) the risks of changes in foreign exchange rates and interest rates. Foggy Albion accounts for about 50% of the entire derivatives market, compared with 38% in 2016. 

Dynamics and structure of volumes of operations on Forex

Source: Financial Times.

The largest Forex market makers are JPMorgan Chase & Co (9.8%), Deutsche Bank AG (8.4%) and Citigroup Inc (7.9%). It is curious that a German bank, like Germany as a whole, is losing its leading position in the international currency market: in 2007 its share in the volume of conversion operations was 19.3%.

In my opinion, large-scale quantitative easing programs from leading central banks of the world contribute to the popularization of Forex. Cheap liquidity from the Fed, the Bank of Japan and the ECB allow investors to buy assets in various countries with a double appetite. It is doubtful that in the face of a slowdown in global GDP and the willingness of regulators to do everything necessary to keep national economies afloat, the situation has fundamentally changed. The volume of operations and the number of people wishing to join the army of Forex traders will increase. Do not miss your chance too!

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