In 2019 the average daily turnover of foreign exchange (forex) transactions and associated derivatives in the United Kingdom amounted to 3.65 trillion dollars. This makes the UK the world’s largest forex market, not only in terms of transactions where one currency is exchanged for another, but also for various forex derivatives. In fact, the UK market is over 2.5 times larger than the second-biggest forex market, the United States.
Forex markets
Simply put, foreign exchange markets are markets where one currency can be traded for another. The most basic type of transaction on forex markets is termed a spot transaction, which is where one currency is traded for another within two days, without a signed contract. The two most common currencies exchanged on forex markets in this way are the euro and the U.S. dollar, which account for over a quarter of all forex transactions globally. In turn, the British pound has the fourth highest average daily turnover of currencies traded on global forex markets, behind the U.S. dollar, euro and yen.
Foreign Exchange Derivatives
In addition to the exchange of currencies, various ‘derivatives’ based on the exchange of foreign currencies can be bought and sold on forex markets. Some of the most common financial derivatives are:
forwards, which are an agreement for the purchase and sale of currency at a fixed price at a point in the future (generally after 90 days);
swaps, which are the simultaneous lending and borrowing of two different currencies between two investors (i.e. one investor borrows an amount in one currency, then repays in a different currency); and
options, which are an agreement to exchange one currency for another at an agreed rate at some time on the future, but with no obligation to carry out the transaction (as is the case with forwards).
Derivatives generally comprise the bulk of transaction on the forex market. For example, spot transactions make up just under a third of all transactions in the United Kingdom, while their portion is only about one sixth of daily trade on the German forex market, and around one eighth of trade on the forex market in Italy.
Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument
(in billion U.S. dollars)
Over the counter (OTC) refers to foreign exchange transactions that occur outside regulated exchanges (such as the New Yok Stock Exchange or London Stock Exchange).
Spot transaction: the exchange of two currencies within two days without a signed contract;
Forward: an agreement for the purchase and sale of currency at a fixed price at a point in the future (generally after 90 days);
Swap: the simultaneous lending and borrowing of two different currencies between two investors (i.e. one investor borrows an amount in one currency, then repays in a different currency);
Option: an agreement to exchange one currency for another at an agreed rate at some time on the future, but with no obligation to carry out the transaction (unlike with forwards).
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Bank for International Settlements. (December 8, 2019). Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument (in billion U.S. dollars) [Graph]. In Statista. Retrieved November 05, 2024, from https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/
Bank for International Settlements. "Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument (in billion U.S. dollars)." Chart. December 8, 2019. Statista. Accessed November 05, 2024. https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/
Bank for International Settlements. (2019). Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument (in billion U.S. dollars). Statista. Statista Inc.. Accessed: November 05, 2024. https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/
Bank for International Settlements. "Average Daily Turnover of Foreign Exchange Transactions and Derivatives in The United Kingdom from 2001 to 2019, by Instrument (in Billion U.S. Dollars)." Statista, Statista Inc., 8 Dec 2019, https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/
Bank for International Settlements, Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument (in billion U.S. dollars) Statista, https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/ (last visited November 05, 2024)
Average daily turnover of foreign exchange transactions and derivatives in the United Kingdom from 2001 to 2019, by instrument (in billion U.S. dollars) [Graph], Bank for International Settlements, December 8, 2019. [Online]. Available: https://www.statista.com/statistics/1207830/average-daily-turnover-otc-forex-derivatives-instrument-uk/