Automated Forex Trading Comes Under Scrutiny By Regulators

Online, December 12, 2010 (Newswire.com) - Automated Forex trading, the practice of automatic trading done by computers, is being blamed for a huge increase in currency market turnover. The Bank for International Settlements, known as the central bankers' bank, estimates that high-speed trading accounts for about 25 percent of spot market activity in foreign exchange, though its full role could not be fully measured.

The bank has identified high-speed buying and selling by computer programs, also known as algorithmic trading, as a key contributor to the ballooning volume of daily foreign exchange turnover, which hit $US4000 billion this year. In its latest Quarterly Review, published December 11, the BIS says electronic buying and selling is one of the main reasons for the increase in turnover, which has risen by 20 per cent since 2007.

Automated Forex trading allows banks to make multibillion-dollar trades without human intervention, has already attracted attention from stock exchange regulators after it was blamed for a sudden plunge of 700 points in the Dow Jones Index in May. Dominated by Deutsche Bank, UBS, Citi and Barclays, algorithmic trading is also being investigated by Australian regulators, including the Reserve Bank.

The bank says retail investors and non-bank institutions traded $US125 billion to $US150 billion a day on foreign exchange markets which amounts to almost 10 percent of the market globally.

Japanese retail investors were the most active currency traders, accounting formore than $US30 billion a day into the global money markets.