Japan to drive 36% rise in retail foreign exchange volumes in 2013

Japanese retail traders seeking to take advantage of yen volatility will drive a 36% rise in average daily FX and contracts-for-differences (CFDs) volumes to $380 billion this year, according to research published by Boston-based consultancy Aite Group.

The research, released on May 16, finds Japanese retail FX trading volumes reached a record $169 billion a day in Q1 2013, more than double the levels seen in 2012. Early indications show April 2013 FX trading volume levels in Japan remain at an elevated level, at more than $155 billion a day, Aite says.

"While we sharply raised our 2013 Japan FX trading volume forecast to $130 billion per day from $90 billion per day late last year, there is a strong chance this new forecast may be too conservative," says Javier Paz, consultant at the firm in Paris. "Yen volatility, far from being resolved, appears poised to be a major 2013 theme, and not just for a quarter or two. Japanese retail FX traders welcome the volatility in EUR/JPY and USD/JPY, their two favourite trading currencies."

According to the research, Japan holds the largest number of retail FX trading accounts, at 5% of the adult population. This compares with nearly 1% of US adults, the research finds. And of the 4.5 million adults that had an account at the end of 2012, some 650,000 traded in Q4, 2012.
While the rate is a fraction of 1% in China and India, Aite says the number of traders from the two markets is emerging by the tens of thousands, without official government sanction of retail FX and despite government prohibition of the practice.

Broadly, says Paz, retail FX has surpassed stock trading in popularity by basic measures. For example, the average web traffic to the three largest retail FX/CFD brokers for 2013 is 33% higher than the average number of visitors to the top three largest stock trading firms in the US.
"This gap will continue to expand as retail FX opens the door to millions of people who lack the capital to invest in traditional cash markets, and the product sophistication to trade in futures/options on-exchange markets," says Paz.

The research also finds that the CFD market has taken strong root in Europe and Australia, but has an 8% to 12% penetration among retail FX traders in Asia, Latin America and Africa. Aite estimates that the total number of CFD accounts in 2012 reached 3 million, of which 659,000 saw activity in Q4, 2012.

The research is based on a survey of 16 retail FX and CFD brokers that represented $58 billion in average volumes a day in 2012, between December 2012 and March 2013. As part of the research, a further study was undertaken between October 2012 and April 2013 of 659 websites belonging to 254 retail and CFD brokers.