Online Foreign Exchange Trading Picking Up

HedgeWorld - April 16, 2004

GREENWICH, Conn. (HedgeWorld.com) - Foreign exchange trading activity is booming, especially among providers of electronic trading capability, according to Greenwich Associates' recent research.

Last year electronic trading was booming researchers say, with almost 40% of all institutions globally trading FX online last year, which is up from the 32% that traded online in 2002. Online traders executed 47% of all tickets electronically, which is up from 37% in 2002.

"Online traders are doing roughly half of their volume online, and almost half of all trades are being executed electronically," said Andrew Awad, a Greenwich consultant, in a statement. "These numbers could easily top 50% next year. People who are trading online are not treading lightly anymore."

Much of that increased volume may come from hedge funds, which make up the bulk of users at emerging companies such as HotSpot FX and GAIN Capital. Earlier this year HotSpot FX reported over the course of 2003, it saw 20% to 30% growth month over month in its customers' trading. Most of that activity was from the firm's leveraged client base, which primarily consists of commodity trading advisers and hedge funds.

GAIN Capital last year upgraded its technology to allow traders to access foreign exchange market data in real time 24 hours a day through mobile phones, personal digital assistants and other wireless handhelds.

For its survey, Greenwich interviewed 73 hedge funds about their use of online FX trading. Of that group, 37% said they actively traded online, while most (47%) sad they were not considering online trading. Another 17% of hedge funds said they planned to start trading online.

For institutional traders overall, worries over security and the lack of straight-through processing technology are keeping some from adopting online trading. A majority of non-electronic traders simply say there is "no need" for online trading in their investment program. Personal relationships falling by the wayside and the loss of market color from sales reps also play a role in slow adoption of electronic FX trading.

Besides those real concerns, Greenwich still expects the number of electronic FX participants to grow along with the number of companies offering such services. The big increases in online trading volume are expected to continue through 2004, officials conclude.