Forex Achieves New Prominence

The creditcrisis has resulted in a collapse in prices for nearly every type of investable asset class (i.e. stocks, bonds, commodities, real estate)- with the notable exception of one: currencies. Of course, this is an inherent quality of forex: a rise in one currency must necessarily be offset by a fall in another currency. While you are probably rolling your eye at the obviousness of this observation, it is still worthwhile to make because it implies that there is always a bull market in forex. Accordingly, capital from both institutions and retail investors continues to pour in to the forex markets, causing daily turnover to surge by 41% (according to one survey), which would imply a total of $4.5 Trillion per day! Investment banks,especially, are trying to increase their forex business in order to compensate for a decline in other divisions. Said one representative: ”We have probably made more of an aggressive leapfrog in growing our revenue base, which has virtual

ly doubled in 2008 versus 2007. With the situation that has been developing over the past six months, where banks are clearly re-embarking on a new role leading back to basics, foreign exchange has to be one of the products that tops that list.”

Based on New York data, which generally reflects global forex activity, transactions between the Dollar, Euro, and Yen (i.e. not involving outside currencies) now account for more than half of the total.