[B]An overview of the BIS 2010 Triennial Central Bank Survey:[/B]
[B]1. [/B]The 2010 Triennial Survey reports the results of two very large, very distinct statistical analyses of the worldwide foreign exchange market:
[B]a.[/B] The first analysis is a study of [B]total foreign exchange turnover[/B] during a one-month period (April 2010), reported as per-day averages in 6 categories (spot forex plus 5 categories of derivatives). Then, these averages are further sliced-and-diced and reported by country, by currency, by currency-pair, by counterparty, by maturity, and by method of execution.
[B]This is the part of the 2010 Triennial Survey that concerns us directly, as retail spot forex traders,[/B] because all of the data gathered on the size and distribution of the spot forex market is reported in this half of the Survey.
[B]b.[/B] The second analysis is a study of [B]notional amounts outstanding[/B] in 5 categories of foreign exchange derivatives, at one particular point in time (June 30, 2010). The 5 classes of derivatives are: outright forwards, foreign exchange swaps, currency swaps, options, and “other” products. (Yes, apparently, foreign exchange swaps and currency swaps are different things.)
This half of the Survey deals with all the elements of the foreign exchange market EXCEPT spot forex.
[B]2.[/B] Keywords to look for, when skimming the Survey or its Table of Contents, are [I]turnover[/I] and [I]amounts outstanding[/I]. Our market, the retail spot forex market, will be included in tabulations of turnover, but not in tabulations of amounts outstanding.
[B]3.[/B] The first thing we get from the 2010 Survey is the overall size of the foreign exchange market. But right away, there’s confusion, because 3 different totals are reported in different places in the Survey: $3.98 trillion/day, $5.06 trillion/day, and $5.53 trillion/day. We have to dig down to Table D.3 on page 38 to get a readable explanation of these numbers. There we find out that the $5-trillion figures are “raw” figures, compiled directly from the data submitted to the BIS from the 53 participating central banks; and we find out that these “raw” figures are subject to a variety of adjustments and corrections.
$3.98 trillion per day is the [I]adjusted/corrected[/I] total daily turnover in the worldwide foreign exchange market, including spot turnover, and turnover in the various foreign exchange derivatives. The BIS refers to this $3.98-trillion figure as the [I]“net-net”[/I] figure — and that’s another keyword to watch for when reading the various charts and tables in the Survey.
[B]4.[/B] Of this $3.98-trillion-per-day total, $1.49 trillion per day is the “net-net” daily turnover in the worldwide spot forex market (our market). This $1.49-trillion figure includes retail spot forex (our corner of the market), and institutional spot forex (hedge funds, etc.).
[I]Spot turnover[/I] essentially means the notional value (in USD) of all spot forex trades. Thus, if you open a 1-mini-lot position in USD/JPY, or USD/CAD, or any other USD-base pair, you will be contributing 10,000 USD to spot turnover in your country.
If you open a 1-mini-lot position in a GBP-base pair, you will be contributing the USD-equivalent of 10,000 GBP to spot turnover in your country. And so forth.
[B]5.[/B] Of this $1.49 trillion per day in spot turnover, $745 billion per day (50%) is transacted in U.K./Europe; $399 billion per day (26.8%) is transacted in North America; and $294 billion per day (19.7%) is transacted in Asia/Pacific. The rest of the world accounts for the remaining 3.5% of total spot forex turnover.
[B]6.[/B] Rounded numbers:
[B]Global foreign exchange turnover (spot plus derivatives) — $4 trillion per day.
Global spot turnover — $1.5 trillion per day.
U.K./Europe spot turnover — $750 billion per day.
North America spot turnover — $400 billion per day.
Asia/Pacific spot turnover — $300 billion per day.[/B]
[B]7.[/B] Trends, from 2007 to 2010:
Global foreign exchange turnover increased 21%, from $3.3 trillion per day (2007) to $4 trillion per day (2010).
Global spot forex turnover increased 50% from $1 trillion per day (2007) to $1.5 trillion per day (2010).
Global spot forex turnover increased as a percentage of global foreign exchange turnover:
from 30.2% (of the $3.3-trillion market) in 2007, to 37.4% (of the $4-trillion market) in 2010.
The USD was involved in 84.9% of all foreign currency transactions in 2010, down from 85.6% in 2007.
Percentages for other major currencies: EUR 39.1%, up from 37%; JPY 19%, up from 17.2%; GBP 12.9%, down from 14.9%; AUD 7.6%, up from 6.6%; CHF 6.4%, down from 6.8%; and CAD 5.3%, up from 4.3%.
The 6 major currency pairs accounted for 66% of turnover in the $4-trillion-per-day global market in 2010:
EUR/USD 28%; USD/JPY 14%; GBP/USD 9%; AUD/USD 6%; USD/CAD 5%; and USD/CHF 4%.
Concentration in the banking industry continues. In 2010, 75% of all foreign currency turnover in the U.K. was handled by just 9 U.K. banks, down from 12 banks in 2007; and 75% of all foreign currency turnover in the U.S. was handled by just 7 U.S. banks, down from 10 banks in 2007.
[B]8.[/B] The $1.5-trillion-per-day spot forex market consists of a [I]retail[/I] portion and an [I]institutional[/I] portion. The market we trade is the [I]retail[/I] spot forex market, and many of us would like to know how large this market is, and how it is distributed geographically.
The BIS does not furnish this information directly, which means that the best we can do is to attempt reasonable estimates (or guess-timates) of its size and scope. I’ll leave that attempt for another time.
