No Bullshit Forex Blog, A Part of No Bullshit Network

Another reason why liquidity of Forex gets better and better each day,

Sept. 25 (Bloomberg) — Foreign-exchange trading rose 65 percent to a record $3.2 trillion a day on average, led by growth in hedge funds and foreign investors, the Bank for International Settlements said in its triennial survey.

The increase in the value of transactions from 2004 was the biggest in the survey’s 18-year history, the Basel, Switzerland- based BIS said today. At current exchange rates, turnover rose 71 percent. The Central Bank Survey of Foreign Exchange and Derivatives Market Activity is based on data from 54 of the world’s central banks and monetary authorities.

“It’s really massive and it says a lot about financial globalization,” said Stephen Jen, the London-based global head of currency research at Morgan Stanley, the second-biggest U.S. securities firm. “Trades can go up in any local market but the survey tells us that cross-border flows have shifted into a higher gear.”

Growing investor access to foreign markets, driven by an expansion in the economies of Asia, has helped triple foreign- currency turnover in the past 15 years. At the same time, hedge fund assets have risen to a record $1.76 trillion, according to Chicago-based Hedge Fund Research Inc.

Transactions involving hedge funds, pension funds, mutual funds and insurance companies rose to 40 percent of all trades, from 33 percent in 2004, said the BIS, which was formed in 1930 and acts as a central bank for the world’s monetary authorities. “Algorithmic” trading, or those managed by computer programs, also spurred growth and increased the speed of trades, according to the report.

Market Share

The U.S. dollar, which fell to a record low against the euro of $1.4154 today, lost market share. It was involved in about 86 percent of daily trading, down from almost 89 percent.

The falling dollar and the growing role of emerging-market currencies may have contributed to the slide in market share, according to the report. The euro’s share shrank to 37 percent, from 37.2 percent.

“This could be taken as yet another sign of the decline of the dollar, but I’m just not so sure,” Jen said. “As financial globalization occurs, markets should become more and more democratic.”

The Chinese yuan and the Indian rupee posted the fastest growth in global currency trading in the past three years as the economies of the world’s two most populous nations expanded. Average daily trade in India’s currency and related derivatives surged almost fivefold to $34 billion, from $7 billion in 2004. In China, volume grew ninefold to $9 billion.

Carry Trades

The Australian and New Zealand dollars gained market share as they attracted so-called carry trades. The Australian dollar was involved in 6.7 percent of daily turnover, up from 5.5 percent in 2004 while New Zealand’s share rose to 1.9 percent from 1 percent.

In a carry trade, investors borrow in low-yielding economies and convert the loans into other currencies to buy higher-yielding assets elsewhere. They profit by capturing the spread. Currencies in countries with higher relative interest rates tend to appreciate as carry trades gain popularity.

The Australian dollar has gained almost 16 percent during the past 12 months while the Swiss franc, another popular funding currency, has lost 5.1 percent.

The U.K., Switzerland and Singapore facilitated a larger share of trades. Switzerland’s nearly doubled to 6.1 percent. The U.K. increased its lead to more than 34 percent, from about 31 percent, and Singapore’s share grew to 5.8 percent, from 5.2 percent.

China’s Presence

Hong Kong’s portion rose to 4.4 percent from 4.2 percent, reflecting China’s growing presence in the market, it added.

“It’s a geographic issue because of the time zone and the hedge-fund community,” said Simon Derrick, London-based chief currency strategist at Bank of New York Mellon Corp. “London has been a growing financial center over the last couple years. There are also natural centers that are rising in Asia and the Middle East.”

The U.K. also dominated the over-the-counter derivatives market, accounting for almost 43 percent of worldwide sales, followed by the U.S. with about 24 percent.

The derivatives market has expanded 71 percent since 2004, rising to $2.1 trillion a day, the BIS said. Cross-currency swaps were the fastest-growing segment, almost tripling, as traders hedged foreign-currency bonds. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates.

Interest-Rate Derivatives

The dollar and the euro led turnover in interest-rate derivatives trading. Their combined share still fell as derivatives linked to the Japanese yen gained, reflecting the country’s first rate increases in five years, starting in 2006.

“We’ve lived through a very benign and stable environment for the last several years,” said David Simmonds, global head of currency research at Royal Bank of Scotland Group Plc in London. “People have become more comfortable and knowledgeable about these instruments in an environment that’s been accommodative. That’s enhanced risk-taking.”

Mergers and acquisitions may have also boosted trading as companies converted currencies to fund takeovers, the report said. Takeovers jumped to about $3.4 trillion last year, from $1.9 trillion in 2004, according to data compiled by Bloomberg.

Trading with non-financial customers rose to 17 percent from 14 percent in 2004, the BIS said.

Source: Bloomberg Currencies

The boom days of the currency trade as well as buy to let mortgages are long since over and now it is back to lending the old-fashioned way. There are a few cheap loans that you can avail yourself of. Many of the buy to let mortgages may not be in the market two years from now. You must evaluate the interest rates at lender loans along with the various provisions offered by american bank before choosing any consolidation service and signing to make payments on a creditcard.

Popularity: 8% [?]

Share This