The shrinking forex market

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The foreign-exchange market is the biggest in the world but it is getting smaller, according to the Bank for International Settlements.

Daily forex trading volumes have shrunk by $300bn in the past three years to $5.1trn, the first decline since the BIS began monitoring the market 16 years ago. Increasingly risk-averse banks have withdrawn from the market amid tighter regulation, notably in the wake of currency-rigging scandals. Hedge funds and speculators have traded less as banks have cut back on their market-making role.

The smaller market will trim revenues in London, which accounts for 37% of global volume. A reduction in liquidity, along with the advent of high-frequency trading platforms, which execute large numbers of orders at high speeds, seem likely to make "flash crashes", such as sterling's recent 6% collapse against the dollar within minutes, more common, reckons the BIS.

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