Regulations, robots, QE assault world’s largest market—FX

Global foreign exchange market, which is world's largest and has been growing at double digit pace for past few decades is now probably on a reverse course with volume shrinking and falling employment. According to Bank of International Settlements (BIS) survey of 1995, Forex daily volume for first time crossed above $1 trillion mark and averaged $1.2 trillion. Latest survey released last year shows Forex volume form 1995 increased more than four times to reach $5.3 trillion as of 2013. In 2010, volume averaged $4 trillion.

Private assessment from CLS bank, which is world's largest multilateral cash settlement service provider, shows forex activity probably peaked by end 2014 and averaged $6 trillion. Compared to that in January volume was $4.8 trillion. Recent survey by central banks of Britain and US show, volume dropped 21% in London and 26% in New York, from a year ago.

However, there is no one factor contributing to the shrinkage in volume.

Regulations - Sine the wake of financial crisis banks and financial institutions have been subjected to stringent regulations, which have curbed their own trading activity.

Swiss shock - After Swiss National Banks (SNB) shocked markets with removal of its Euro-Franc peg, big banks have become stricter on smaller brokers and hedge funds that they extend credit to, as many suffered big losses and some had to file for bankruptcy.

QE - Quantitative easing is also to blame. Central bankers' actions have reduced volatility in the market has led to drop in volume other markets like treasuries and bunds, which led to reduction in cross border transactions and reduction in volume in FX. It has also reduced the hedging volume.

As markets shrink, employment suffers too.

Data show the number of traders employed in Europe at the top 10 foreign exchange banks is down 30 percent over the last three years.  According to financial industry analytics data firm Coalition, the top 10 FX banks alone operating in Europe employed 332 people on their G10 European FX trading desks last year. That's down 30 percent from the 475 employed in 2012.

However, shrinking volume isn't the only one to blame for lesser employment. It's the robots, the algorithms that are replacing human traders and analysts.