Foreign exchange trading volume declined by approximately 6% to just under US$100 trillion last year, reports Greenwich Associates.

The firm reports that the slowdown in global foreign exchange markets began in the second quarter of 2009 as world financial markets began to stabilize, and continued through the end of the year. Greenwich says that as it completes its’ research on global FX markets mid-way through the fourth quarter, “it’s possible that reported volume totals actually understate the extent to which markets slowed in calendar year 2009 due to a significant falloff in activity at year-end.”

Nevertheless, it says that, “among the financial institutions that constitute the lion’s share of the global FX market volume, trading volumes were flat to just slightly lower last year, as a 23% decline in hedge fund trading volume was partially offset by a 16% increase among retail aggregators. Among corporations, which generated only 11% of total volume in 2009, foreign exchange volume increased 10% from year-to-year.”

The drop off in hedge fund trading volumes had a disproportionate impact on global foreign exchange growth rates, it notes. Greenwich reports that from 2006 to 2007, a period during which global FX volumes grew by 30% — hedge fund trading volumes increased 180%. The global financial crisis brought that phase of growth to a sudden stop, it says, with hedge fund FX trading volumes dropping 28% from 2007 to 2008. “After continuing to decline over the past 12 months, hedge fund trading volume remains at just 14% of the market, allowing retail aggregators to close the gap in terms of contributions to global FX trading volumes,” explains Greenwich Associates consultant. Tim Sangston.

Trading volumes in the United States declined 10% from 2008 to 2009, it reports, and United Kingdom trading volumes fell by 14%. Trading volumes in Europe and Japan were essentially unchanged year-over-year. Trading volumes grew nearly 10% in Asia (ex Japan) however, driven by an increase among a handful of large banks.

IE