Will London remain the world’s largest FX trading hub?

Ever since the 1980’s, London has been the main hub of Forex trading worldwide. There are many reasons for this, for instance the opportune location of the UK in the world. It connects the Asian and American markets, due to the time zone it is in. The British FX market also benefits from access to innovation and tight regulation. Some of the Forex brokers licensed in the UK are among the leaders in the industry and have been for decades. All of this has resulted in the country having a leading share in the world’s most liquid market. 

Photo by Benjamin Davies on Unsplash

In 2019, the UK had a total of 43% of the global share. At the time, the second competitor had only 17%. However, is it possible for this to change amid the challenges the country faces? In 2022, political turmoil and a cost of living crisis have made the Pound Sterling drop to new historic lows against the dollar. Britain has also become the world’s sixth biggest economy, when its number five spot on the list was overtaken by India in September 2022. Will the UK Forex market shrink, or will it retain its spot? The following article seeks to answer that:

London’s share of the Forex market 

As mentioned, the UK had 43% of the share of the Forex market worldwide in 2019. To put this in perspective, the total FX trading volume for the year was $6.6  trillion per day. This means that $2.8 trillion was being traded on a daily basis within the UK, or with UK Forex brokers. The Bank for International Settlements reports, however, that there has been a shift in the paradigm. 

In 2022, the UK’s share of the markets has dropped to 35%. The international total volume has, on the other hand, increased as well. From $6.6 to $7.5 trillion daily, there has been a 14% jump from 2019, reports the 2022 survey from the Bank for International Settlements. To put this into perspective, this means the size of the FX traded in the UK is currently $2.6 trillion daily. 

So not only has London started losing its grip as the biggest FX hub – the country has a lower total trading volume against a backdrop of historic global highs. What is the reason behind this shift? Well, the answer is quite complex. There is less trust in the UK’s financial institutions given the political instability of the country, the unpopular fiscal policies of the leading political party and the consequences of Brexit. But there are also factors that are outside of the situation in Britain. For instance, the Asian markets have started growing significantly, and the US’s measures to bounce back from its 2021 economic slump have bore fruit. This means a shift in market share is inevitable – here is where it has been shifting towards:

Where has Forex trading gone?

Trading Forex has only increased in popularity since 2019. There has been immense growth within the industry, and a very high interest amongst retail traders during Covid 19. But, as we highlighted, the amount of it being done on the UK markets has declined. So where have the traders gone? 

The biggest competitor of the UK FX market is the United States. This is because it is another leader in fintech innovation, but also because of the immense popularity of its national currency. The USD underpins the lingua franca of the global trade, so to speak. All of these factors mean the States has a share of 19% of the global markets. In 2019, that share was 17%, noting a certain growth. 

However, a driving force within the industry has also been the expansion of services to emergent markets. These are countries like Malaysia, Indonesia and so on which have a higher and higher number of people interested in online trading. This has been due to a combination of factors – their recent economic growth, more and more people entering the middle class and even the higher availability of the internet to them.

There has been pressure to regulate the Forex markets in Asia, but the main trading hub there is Singapore. The country has one of the strictest frameworks about its FX markets, and boasted the third largest share of the global marker in 2019. In 2022, Singapore notes a growth from 7.7 to 9.9% of the global amounts, compared to figures from 2019. Interestingly, other, more established jurisdictions like Japan and Hong Kong have also lost a bit of their stay on the markets. In 2022, Japan had 7% of it and Hong Kong dropped to 4%. 

Finally, the EU is among the biggest possible directions the market could shift towards. We mentioned at the start how the geographical location of the UK was quite fortunate, but so is the location of Paris, Germany and Luxembourg. These EU member-states have the benefits of a unified regulatory framework as well, which makes FX trading within the entire Union bound by the same, common rules. The framework itself is comprehensive but not too burdensome for the brokers, as something like the regulation within the US can be. There has been an increase in the market share of both Germany and France, which now account for a combined 4.1% of the market share. 

The shift towards these EU markets can be noted in the recent struggle of the British stock market, which has also been displaced by the ones in the Union, in particular the Paris Stock Exchange.

UK stocks now worth less than French stocks after Brexit 

The value of UK stocks eclipsed that of the Paris ones in 2016 by over 1.5$ trillion. However, six years since the year of the Brexit vote, France has managed to cross the gap – and even overtake the UK. The total volume of the British stock market is $2.821. Compare that to the French figure of $2.283 – even though quite marginally, the UK is falling behind. 

This can be owed up to a variety of factors, chief among which is the lack of success of one of the main drivers behind Brexit – the UK determining its own trade policy. Instead of simply freeing it up from Brussels, the venture of the country into brokering its deals by itself has been chaotic and slow to develop. Six years after the vote to leave, the first independent trade deal was struck, between London and Australia and New Zealand. This has done great damage to the faith in the British institutions and had a chilling effect on business investment in the country as a whole. 

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