LMAX Exchange
A key insight from semi-annual surveys by the London Foreign Exchange Joint Standing Committee (FX JSC) and U.S. Foreign Exchange Committee is that the average trade size for parts of FX markets is decreasing over time. Lower currency volatility, the rise in interest for HFT, and fierce competition in the FX liquidity part of the market have reduced the average size of spot FX trades two- to threefold, to around US$1.1 million in both the United Kingdom and the United States. The average trade size of other FX products is much higher than that of spot FX, however—outright forwards currently sit at US$3.0 million, FX options at US$25.1 million, and FX swaps at US$47.1 million. With expected continued growth in HFT volume and increasing market participation by retail traders, the average trade size of spot FX is expected to decrease even more in coming years.
Source: Aite Group ‘Global FX Market Update 2013: Increased Market Transparency, More Competition’, June 2013
Video Transcript
Average Trade Size Declines for Spot FX
David Mercer: Ok, so the question is “The declining size of the average spot trade†in the UK and indeed globally, we’ve seen it drop from maybe 5 million dollars down to 1 million dollar per average ticket in 2012. I think it’s only going to continue and there’s a couple of things that drive that, one is the wider market access, the access to more retail traders or smaller traders. Our average ticket size on LMAX Exchange is 100,000 dollars, we print over 1.5 million trades a month, I think new venues like this will attract that market place and certainly the average ticket size will go down. Likewise there’s the advent of high frequency trading, that’s driven the big growth right now. Probably as people are looking for smarter algorithmic execution, that’s going to continue, it brings problems with it as well the liquidity providers like to know the total size of the trade, the total size of the client that they’re pricing. So, we’ll have to be careful, people are looking at speed bumps and trying to understand the nature of their client on the buy-side, but as the whole market goes towards trading that same way, it should be mutually beneficial for buy-side and sell-side. The overall decline will continue but still, venues like ourselves will be able to accommodate larger size and smaller size.