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Investment banks that thought 2025 would bring a windfall of mergers and acquisitions fees have been disappointed so far. Nor are equity and credit traders likely to deliver outsized gains, following a blockbuster 2024. But some comfort could come from a less glamorous place: currencies.
President Donald Trump’s yo-yoing tariff decisions are an ordeal for companies trying to keep supply chains and operations running smoothly. But they have also ruffled the usually calm world of foreign exchange. The Mexican peso, the Canadian dollar and the euro have all seen big price movements with each Trump trade threat and reprieve.
Where there is volatility, there is often a trading opportunity. February was a record month for currency futures and options trading at CME Group. The average daily open interest — a figure that represents all futures contracts held by market participants — reached 3.25mn contracts, equivalent to a notional $297bn.
Foreign exchange trading, a $7.5tn-a-day business, is not centralised like the business of shifting stocks, which tends to happen through exchanges. Still, CME’s surge in activity dovetails with forecasts from research group Coalition Greenwich, which expects revenue from trading G10 currencies to grow 7.3 per cent this year and 5 per cent next year. That beats expected gains from stock and bond trading.
Currency trading used to mint money for Wall Street. But the market turned placid after the 2008 financial crisis, as a period of ultra-low rates settled in and took away the volatility traders needed to turn big profits. The $19.9bn in revenue Coalition Greenwich expects currency desks to bring in this year would be the second best year since 2011.
Wall Street banks do not break out precisely how much their FX trading desks make. In most cases, the sums are likely to be small. JPMorgan’s latest annual filing logged $4.9bn of trading revenue related to foreign exchange instruments across the whole bank in 2024. That compares with total group revenue of $181bn.
Goldman Sachs, which reported revenues of $13.2bn from its fixed income, currency and commodities division last year — a quarter of its entire revenue — noted that the unit was boosted in part by higher net revenues in currencies. Citigroup made just over $10bn in revenue in rates and currencies, which includes FX trading, out of a total top line of $81bn.
Even Wells Fargo, for whom FICC revenue makes up just 6 per cent of group total, is making a push into FX options trading, including a hiring swoop on Deutsche Bank last year.
Banks sometimes talk of two kinds of volatility: good and bad. Too-wild lurches — or extreme scenarios such as the dollar losing its haven status — can damage rather than augment revenue. Either way, currency traders will be busy in 2025. For now, it seems that will be to their employers’ benefit.
https://www.ft.com/content/6df625c1-9122-4407-8d96-bdae935d9c4b
