Between 2001 and 2004, there were no substantial changes in the composition of the FX market.

The U.S. dollar was on one side of 89 percent of all transactions, followed by the euro (37 percent), the yen (20 percent) and the pound (17 percent). It shows the U.S. dollar/euro continued to be by far the most traded currency pair in April 2004, with 28 percent of global volume, slightly less than in 2001,
followed by U.S. dollar/yen with 17 percent (20 percent in 2001) and U.S. dollar/pound with 14 percent (11 percent).

The share of trading in local currencies in emerging markets increased slightly to 5.2 percent.

In the OTC derivatives market, average daily turnover increased by 112 percent between April 2001 and April 2004, to $1.2 trillion at currentexchange rates. The OTC market section consists of “non-traditional” foreign exchange derivatives — such as cross-currency swaps and options — and all interest-rate options.

“What surprised me was the large increase in derivatives trading,” says Osman Ghandour of The Forex Edge. “It appears the forex market is attracting a higher level of speculative fever — always a dangerous sign. “However, what’s more, I think participants have become more sophisticated in trading crossrates, which also adds to the turnover,” he continues. Bank of New York’s Woolfolk also
sees speculative trading as a significant factor in the forex market.

“Currency is now traded as an asset class more so than at any time in the past, and such speculative interests have undoubtedly boosted FX turnover,” he says.

Business in interest rate contracts grew by 110 percent. The increase was driven especially by trading in dollardenominated instruments, which were up by 128 percent, according to the survey. Activity was intense for dollardenominated options, with turnover up a whopping 675 percent.

Because of this jump, trading in interest rate options represented 17 percent of total trading in interest rate products — a threefold increase over April 2001. “If you look at the breakdown of the increase, the largest component is not the spot market, but rather FX swaps, although all three components — spot,
outright forwards and swaps — all posted gains year over year,” says Dave Floyd of Aspen Trading, an FX trading and research firm.