Banks and Big Institutional Profits Declining from FX Trading

Banks are seeing a steep decline in profits from currency trading, as once-lucrative businesses are eroded by the rise of electronic trading and the proliferation of new platforms...

As the easy profits from handling trades for clients vanish, banks are being forced into an arms race, analysts and traders say. That means offering better terms to customers and spending heavily to develop electronic-trading platforms of their own...
***Note how it talks about the easy profits for banks, which has always been getting the spread which is a no-risk business, as opposed to trading which carries a much greater risk

BarclaysPLC (one of the institutions I trade with) partly blamed a slump in foreign-exchange trading for a 19.8% drop in revenue at its fixed-income, commodities and currencies division in the third quarter....

The biggest hit to profits comes from the narrowing gap between bid and offer prices in the foreign-exchange marketplace. Banks quote two prices for currencies: the rate at which they are offering to buy, and another, typically higher, rate at which they will sell. But with increased competition and prices from multiple sources streaming across clients' computer screens, banks have been forced to reduce that bid-offer margin...
***This will continue - tis inevitable

According to Euromoney, the top three—Deutsche Bank, Citigroup and Barclays—controlled 39.5% of volumes in 2011. It was the first time the three biggest players increased their collective share since 2007.
***Key point is the industry was not consolidating in control of volume from 2007 - 2010.  Only in 2011 did we see more consolidation...

full article here


Views: 307

Comment by 2ndSkiesForex on November 28, 2012 at 3:03pm

And cue the response from Peter in 5...4...3...2...

Comment by 2ndSkiesForex on November 28, 2012 at 3:14pm

I hear ya, been 'scalping' Dow Jones, Gold and GBJPY.  Hope (although I'm pretty confident) you are getting along just fine.  

But I am shocked...shocked you liked the article ;-)

Good hunting amigo

Comment by 2ndSkiesForex on November 28, 2012 at 5:03pm

Hola Peter,

I have to agree with you the banks made out, and investors like yourself did not, which is really a shame and I think unjust for sure.  And the fact they wanted it back, that they thought themselves such an important part of our economy and society just shows their level of delusion and self-importance.

I also agree they need some 're-adjustment' about what their real value is, and hopefully both competition and regulators can work to achieve thus.

As for HFT, sure, they made money, but those revenues have been declining year after year since 2007/09.  At the peak they made $4.5B and now its about $1.2B - a considerable decline, partially because the fees are huge now (exchange feeds), but also HFTs are now cannibalizing off each other, and having to compete against each other, so it is definitely not as profitable as it once was.  That is why they are making their way further into FX because the other parties are dying down.

Overall though, I'm with you on this one.

Kind Regards,
Chris

Comment by 2ndSkiesForex on November 29, 2012 at 2:08pm

Along those lines Peter....BOE going after some UK Banks

http://professional.wsj.com/article/SB10001424127887323751104578148...

Will be interesting to see what comes of this

And how the BOE will manage the FSA now that its folding it.

Comment by 2ndSkiesForex on November 29, 2012 at 9:01pm

Agreed - although not just banks in the UK, in the US and Japan which were also co-party to the Lie-bor.

I would like to see something come out of this - other than the usual small fine and things continuing as usual.

Kind Regards,
Chris

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