FX Trading Volume Jumps 5% YOY as Currencies Become More Volatile

Trading volume in the forex market has shot up to record levels courtesy of unprecedented volatility caused by the war in Europe, as well as surging inflation. This has led to foreign exchange trading platforms experiencing a significant uptick in terms of both average daily volume (AVD) and revenue over the first quarter of the year.

Euronext Reports 58% Jump in Q1 Revenue

Euronext, a pan-European bourse that offers trading and post-trade services in various assets including equities, exchange-traded funds (ETFs), bonds, derivatives, commodities, foreign exchange, and indices, posted a more than 58% jump in its Q1 revenue. 

The group’s income came in at €395.7 million, which was driven by non-volume related and trading activities growth. The total trading revenue of the group was €150.8 million, a more than 57% increase year-over-year (YOY). 

Notably, the FX trading demand on Euronext jumped by 18%, bringing €7.2 million in revenue for the group. Moreover, the average daily volume (ADV) with FX trading increased by 14% to a whopping $24.5 billion. 

Overall, the first quarter of 2022 marked the second-best quarter ever for Euronext FX both in terms of revenue and average daily volumes, thanks to heightened volatility. The first quarter of 2020 was the best quarter for Euronext FX when forex trading brought in €8.0 million in revenue. 

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FX Trading Volume Up 5% YOY 

Trading volume in the forex market has hit record levels around the globe. CLS, a multi-currency settlement system for FX transactions, said on Thursday that the average daily FX trading volume in April hit $1.86 trillion, an increase of 5% YOY. 

In a statement, CLS detailed that there has been a 14% rise in spot trading and a 27% increase in forwards activity. However, the settlement system noted that April volumes were down by 12.5% compared to March. 

The daily FX trading volume in South Korea has also reached new highs in the first quarter of the year. During the January-March period, the daily FX turnover came to an average of $65.55 billion, up by around 15$ percent from three months earlier, according to central bank data. 

The increased interest in FX trading, caused by heightened market volatility, comes as the US Federal Reserve tries to stamp out inflation by hiking rates. In mid-March, the central bank announced its first rate hike in more than three years, a 0.25 percentage point move. 

In early May, the Fed proceeded to increase interest rates by another 0.50% and indicated that it will further raise borrowing costs throughout this year as it tries to fight surging inflation. The Fed also revealed a strategy to shrink its asset holdings, saying that beginning June 1, it will allow up to $47.5 billion a month to roll off its balance sheet.

Besides the rate hikes, concerns about the economic consequence of the war in Ukraine have also contributed to additional FX volatility. The war has already adversely impacted Russia’s ruble and the euro, which is now trading hovering just above $1.05, down from around $1.22 last June. 

Meanwhile, volatility in currencies can also offer arbitrage opportunities for crypto users. For instance, users can trade stablecoins pegged to the US dollar against stablecoins pegged to the euro or other currencies and enjoy the forex market volatility. 

Do you think the forex market volatility will continue into the second quarter of the year? Let us know in the comments below. 

About the author

Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFTs). He is an active user of digital assets for remittances.