Cboe FX volume nosedives in April after crossing $1 trillion milestone

abdelaziz Fathi

Cboe’s institutional spot FX platform reported ‎its trading volumes for the month ending April 2022, which saw a ‎sharp drop to hit its lowest point since January.

Cboe

During April 2022, Cboe FX disclosed a total trading volume of $777 billion, down -24 percent on a month-over-month basis from $1.02 ‎trillion in March 2022‎. This figure was however higher by 14 percent year-over-year when weighed against $677 billion in April 2018.

In addition, the exchange’s institutional FX trading venue saw its average daily trading volume amounting to $37 billion in April 2022, down 16 percent month-over-month from $44.4 billion in March 2022.

On a year-over-year basis, the ADV numbers released by Cboe FX, formerly Hotspot, illustrated stronger performance, rising by 23 percent when weighed against $30 billion a year earlier.‎

Cboe FX turnover crossed the $1 trillion milestone last month in response to Russia’s invasion of Ukraine. The recent pullback, however, raises serious questions about how deep a possible pullback in volumes will be, though it should not cause panic.

The historical precedents, most recently the Covid-19 crisis, show that FX market liquidity   falls during periods of market stress; and that the impact of post-crisis regulatory change often brings adverse consequences on FX traders’ activity.

If the history tells anything at all, the increase in FX volatility, reflected by sharp swings, makes traders tend to pare back the size of their positions in order to avoid the sizeable risks on the downside.

Cboe strengthens FX business

According to conclusions made by one of the BIS reports, there was a marked increase in the amount of FX turnover during the lead-up to the financial crisis, aided by low volatility and a high appetite for risk. These factors reversed a few months later when traders became increasingly risk-averse, and market volatility spiked higher.

Interestingly, the current pattern mimics what happened during the crisis period, which initially saw an increased FX turnover that was attributed to a ‘hot potato’ effect, where traders were keen to pass on any risk as quickly as possible. This was seen recently when investors liquidated nearly everything for cash, including the traditional safe havens like gold and yen, only driving up the US dollar.

Liquidity management has been a key focus at Cboe FX over the past few years, coupled with adding extensive analytics capabilities. The company operates an electronic foreign exchange trading venue that permits certain institutions to enter into spot transactions with their preferred counterparties to meet their specific trading needs.

Dubbed ‘Cboe FX Point,’ the direct execution model provides institutional investors with a flexible range of options, including the ability to create custom, relationship-based connections.

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