Forex: London still dominates

The City does not dominate all financial markets, but forex is one that it does. UK's foreign exchange market accounts for almost one-third of global turnover, with its share steadily edging higher - helping to strengthen the City's position as a financial centre, according to a report by International Financial Services London:

Average daily turnover on the UK's foreign exchange market reached $1.1 trillion in April 2006, up 41% from the previous year... There was also a further $102bn traded in currency derivatives. Growth of trading in the UK outpaced the 38% growth in global foreign exchange volumes which totalled a record $2.7 trillion in April 2006 ($2.9 trillion including currency derivatives). Key factors in the increase of foreign exchange trading were its growing importance as an alternative investment and an increase in fund management and hedge fund assets.

London consolidates lead in global foreign exchange markets, writes David Prosser in The Independent:

"The rapid growth in the volume of foreign exchange turnover over the past two decades reflects the continuing growth of international trade and expansion in global finance and investment," said Mark Maslakovic, the senior economist at IFSL. "The UK, and London in particular, is by far the largest global market for foreign exchange trading, well ahead of the US and Japan."

This year, deals transacted in London will account for 32.4 per cent of all foreign exchange trading, according to IFSL's analysis. The UK's market share is almost twice as high as the next biggest player, the US, which has 18.2 per cent of all currency trading. Japan, with 7.6 per cent, and Singapore, with 5.7 per cent, are the next most important currency exchange markets but lag considerably behind Western competitors.

...Mr Maslakovic said the UK had developed into the ideal centre for currency trading since Margaret Thatcher's newly elected Conservative government abolished exchange controls in 1979. Until then, foreign investors were almost entirely prevented from buying sterling unless doing so would benefit Britain's balance of payments figures. UK residents, meanwhile, were not allowed to buy foreign currency for investment purposes, unless the purchases were funded with the sale of existing overseas assets.

...the liberalisation has subsequently enabled the UK to cash in on its geographical position as a bridge between the US, Europe and the Far East.

IFSL said the UK had a string of additional advantages as a centre for foreign exchange trading. They include: a large fund management sector; a large number of investment banks and brokers; easy access to global markets combined with a tradition of welcoming foreign firms; high-quality professional services; efficient telecoms infrastructure; and the use of the English language.