Comment by Peter jcp on January 17, 2013 at 10:05pm

Hi John - did read it and agree with you it is a negative sum game. I can understand the idea that many transactions might not be so key to the body - individual or company as it might be to a retail or commercial trader.

For example if I planned to sell say a holiday villa in the South of France which had been owned for say 20 yrs and was worth 400k euros. If my capital gain had been say 200k euros ( profit over original cost) - I would be keen to get a good exchange rate on transfer to UK pounds - but if I lost say 2  - 4 k on the exchange - its hardly a problem in comparison to the profit.

So the transaction is profitable - even if  I exchange on a bad day with a bad rate - its does not really matter.- as obtaining the best exchange is not the number one priority.

This means thousands or millions of business transactions that take place around the world on a daily basis - the exchange rate is hardly the "major factor"  - they would happen even if the EU was at 1.30 or at 1.20.

Commission costs or spreads make it a negative game - but also timing can overcome them in the case of increasing assets like property and art etc

One question you might be able to answer - it is difficult to find a true definitive answer - what percentage of the currency market is actually purely speculative and what part is down to commercial activities - ie imports and exports of goods and not just money transactions? 

Regards 

Peter

Comment by Rhody Trader on January 18, 2013 at 11:45am

Peter,

I don't know if I've seen any estimates on what is speculative vs. non-speculative in the inter-bank market. If I come across anything I'll let you know (the BIS survey figures may give some idea). The CitiFX survey from a couple years ago had something like 83% of participants saying they consider themselves speculators. It's probably even higher if you were to confine the answers to strictly retail traders, as I suspect there were some non-retail folks mixed in for that survey. Speculators tend to be much more active than non-specs (how often do you need to hedge, etc if you're a corporate or an investment fund?), so I think it's pretty safe to say that on the retail side we're talking well north of 90% of volume being purely speculative.

John

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