Record turnover does not eliminate trading risk
Foreign exchange is among the most liquid financial markets, yet the scale of trading can obscure practical risks faced by institutions, companies and individual participants. A market can process enormous volumes while still exposing participants to difficult execution, financing costs, counterparty failures and settlement delays. In FX, successful risk management begins before an order is placed and continues after the price has been agreed.
The Bank for International Settlements reported average global foreign-exchange trading turnover of $9.6 trillion per day in April 2025, an increase of 28% compared with its 2022 survey. The US dollar was on one side of approximately 89% of trades. These are turnover measures, not measures of investment profits or capital available for trading. Their value lies in illustrating how extensively currencies connect financial centres and participants. BIS Survey
The market is global but activity remains concentrated
Liquidity is not evenly distributed across currencies, times of day or venues. The BIS survey found that sales desks in the United Kingdom, United States, Singapore and Hong Kong SAR accounted for roughly three-quarters of global FX turnover in April 2025. Major currency pairs tend to offer more active trading than less widely traded currencies, although conditions can change quickly around economic releases or geopolitical events. BIS Survey
This concentration matters for businesses as well as professional traders. A company converting revenue earned overseas needs to consider when currency exposure arises, which counterparties provide quotes and whether a trade can be completed without moving the market materially. A displayed price is only one component of the final economic outcome.
Turnover is not the same as available liquidity
High aggregate volume can give the impression that any order can be executed instantly at a narrow spread. In practice, market depth varies. During periods of uncertainty, quoting institutions may reduce the size they are willing to trade or widen the difference between buying and selling prices. A participant who plans around an indicative mid-market rate may discover that actual execution is materially less favourable.
Transaction costs should therefore be measured against the complete trade: quoted spread, execution slippage, brokerage fees, financing charges and the cost of converting or moving funds. For a corporate treasury desk, the relevant measure may also include how execution affects an underlying invoice or debt payment. For leveraged traders, small apparent costs can become significant when positions are entered and exited repeatedly.
FX swaps are central to market functioning
The popular picture of FX trading often centres on spot-market speculation. The market is broader. FX swaps, forwards, options and currency swaps support funding, hedging and risk transfer across the financial system. The BIS’s 2025 survey provides separate information on the structure of foreign-exchange and over-the-counter derivatives markets, underscoring the importance of looking beyond the simple exchange of one currency for another. BIS Results
For a company with expected foreign-currency receipts, a forward may help fix the exchange rate applied to a future cash flow, although the instrument creates contractual obligations and can carry costs or credit exposure. An FX swap can alter the timing or currency composition of funding. Choosing an instrument requires matching it to the underlying need rather than selecting the product that appears to offer the most attractive quoted rate.
Trade execution is only the beginning
Once counterparties agree a currency transaction, the corresponding payments still need to occur. Settlement risk arises if one party delivers its currency but does not receive the other. The failure of Bankhaus Herstatt in 1974 remains a classic example of why this possibility matters. Modern settlement arrangements have reduced exposure, but they have not removed it from every transaction.
BIS research published in June 2026 estimated that just over $5 trillion, or 36% of average daily FX settlement value measured in April 2025, used payment-versus-payment arrangements that eliminate principal settlement risk. Other methods mitigated some exposure, while more than $1.4 trillion, roughly 10%, settled on a gross bilateral basis fully exposed to settlement risk. These figures concern settlement value, not daily trading turnover, so they should not be compared as though they share the same denominator. BIS Settlement
Payment versus payment changes the exposure
Payment versus payment, commonly abbreviated PvP, links delivery of the two currencies so that one transfer occurs only if the other occurs. That structure addresses the principal risk of paying away one currency without receiving the other. It does not mean that every operational, liquidity, counterparty or legal risk surrounding a trade disappears.
Where PvP is unavailable, firms may use netting, timed settlement controls and counterparty limits to reduce exposure. These approaches have different strengths and assumptions. The BIS has stressed that certain methods mitigate but do not eliminate settlement risk. Institutions should therefore be precise about what protection a process actually delivers. BIS Settlement
Speed can create new pressure
Shorter transaction and settlement timelines reduce the time available to detect and correct errors. A missing confirmation, inconsistent beneficiary detail or late currency payment can affect a related securities trade or supplier obligation. Firms expanding cross-border activity should review how rapidly they can match confirmations, reconcile balances and resolve exceptions when markets are active across time zones.
Automation helps where processes are well designed, but it can also propagate incorrect instructions more quickly. A resilient trading workflow needs controls for data quality and authorisation, along with procedures for the moments when straight-through processing stops. Speed is valuable only when it operates alongside accuracy and traceability.
Leverage turns modest moves into material outcomes
Currency movements are often measured in small percentage changes, which can encourage participants to use borrowing or derivatives to magnify exposure. Leverage also magnifies losses. A position may be closed by a margin mechanism before an investor’s longer-term view is realised, and losses can exceed deposited collateral under some arrangements and legal frameworks.
A trading plan should therefore specify exposure limits, available collateral, how positions behave during sharp moves and the conditions under which a trade must be reduced. Corporate treasurers face a related discipline: a hedge should be proportionate to the real commercial exposure it is intended to manage. A large position unsupported by an underlying cash flow is not made safer merely by calling it a hedge.
Price, policy and positioning interact
Exchange rates respond to many forces, including interest-rate expectations, inflation, growth prospects, external balances and changing appetite for risk. A central-bank decision can affect multiple currencies, but the reaction depends on what markets had already anticipated. A headline that appears positive for one currency does not guarantee appreciation when investors have priced in an even stronger outcome.
For trading desks, this argues for separating market analysis from execution discipline. An apparently compelling economic view still needs an instrument, position size, time horizon and exit framework. For non-financial companies, the priority may be less about predicting the next move than about reducing the uncertainty attached to future cash flows.
Liquidity planning matters during market stress
The ability to meet collateral calls or currency-payment obligations is fundamental to sustaining positions. A profitable hedge in economic terms can still create temporary cash demands because of how its value changes and when margin must be posted. Firms should consider this timing mismatch before establishing large derivatives programmes.
Counterparty diversification and committed liquidity facilities can help, but each introduces documentation and operational requirements. The aim is to avoid discovering during a volatile session that a trade cannot be maintained or settled because the necessary cash is held elsewhere or approvals cannot be obtained in time.
Building a full-lifecycle trading checklist
A meaningful trading control framework covers more than the entry price. Before execution, participants can document the exposure being managed, permitted instruments, acceptable counterparties and maximum loss or liquidity demands. During execution, they should record the quote, order size, market conditions and any deviation from the intended strategy. After execution, confirmations, collateral obligations and settlement instructions need to match the trade agreed.
For a company using derivatives to hedge commercial cash flows, the process should include an independent reconciliation between the hedge and the underlying invoice, loan or expected receipt. A hedge that is larger or longer than the exposure it protects may introduce new risk. For an investment fund, independent oversight of position limits and counterparty concentration can reduce the possibility that a strong conviction overwhelms operational controls.
Post-trade analysis is equally important. Reviewing slippage, rejected orders, failed settlements and unexpected funding charges allows a desk to assess whether its apparent trading success survives the complete cost of implementation. Reliable execution is a repeatable process of measurement and correction, not a claim that any trading model can consistently predict currency prices.
What the growth of FX really tells us
The market’s enormous scale reflects the role currencies play in international investment, banking and trade. It should not be interpreted as proof that execution is effortless or that speculative strategies are likely to succeed. The 2025 BIS survey and subsequent settlement research point to a more useful conclusion: FX is a system of interdependent trading, funding and payment arrangements, not simply a screen of changing prices. BIS Survey BIS Settlement
For banks, the priority is robust controls around counterparties, trading infrastructure and settlement methods. For companies, it is aligning currency instruments with actual exposures and cash needs. For investors and traders, it is understanding costs, leverage and the possibility of rapid losses. In every case, the quality of a currency decision depends on what happens after the trade as much as on the rate agreed at the start.
References
BIS Settlement — https://www.bis.org/publications/qr-202606/uncovering-fx-settlement-risk-new-measures-2025-bis-triennial-survey