* FX carry trade volume collapses in Q1 on dbFX platform
* Trade in euro/dlr jumps; bulk of dbFX business from majors
* Overall FX volumes rise as investors flee stocks, bonds
By Jessica Mortimer
LONDON, May 15 (Reuters) - Trading in carry trade currencies collapsed in the first quarter, but volumes overall on FX trading platforms have held up strongly, bolstered by a sharp rise in trading of major currencies.
Betsy Waters, global director of Deutsche Bank AG's retail FX platform dbFX, said six currency pairs that represent the carry trade made up just 9 percent of the platform's overall volume in the first quarter. That is down from 23 percent over 2008 and 37 percent in 2007.
By contrast, trading in the euro against the dollar jumped sharply as a proportion of total trade, rising to 54 percent in the first three months of this year from 41 percent during 2008 and 20 percent in 2007.
"The bulk of our business now is coming from the top three or four currencies," she told Reuters in an interview.
This helped ensure continued strong growth for dbFX in volume and client numbers, which both more than doubled during 2008.
Like many other FX platforms dbFX benefited from the jump in currency market volatility late last year as the global crisis swept financial markets.
Volumes spiked in October, the month after the collapse of Lehman Brothers, Waters said, which helped to contribute to a 60 percent year-on-year growth during the fourth quarter.
This growth has continued in the first three months of 2009, with volumes rising 37 percent year-on-year and by 4 percent from the fourth quarter, she said.
Though no data is available beyond March -- after which investor risk appetite picked up to propel the higher-yielding Australian dollar to 7-month highs against the dollar and yen -- Waters said she has not yet seen signs of the move away from carry trades reversing.
In carry trades, investors borrow in low-yielding currencies -- this was most frequently the yen because Japanese interest rates were for a long time the only ones close to zero -- to invest in higher-yielding currencies.
Currencies like the Australian and New Zealand dollars and sterling were among the main beneficiaries.
It was a popular trade before the financial market crisis erupted, sending market volatility skyrocketing and forcing central banks around the world to slash interest rates.
GROWTH CONTINUES
Waters believes the retail FX market is seeing a similar trend to the last major equity market downturn of 1999-2001, when many equity traders abandoned stocks for foreign exchange.
"When we look back five years from now, we're going to say we saw a further resurgence in the asset class, and a whole new wave of investors finding FX," she said.
"We see volumes continuing to grow, we see our product continuing to evolve and we see retail FX continuing to develop over the long term".
The other trend she noted that has developed as a result of the financial crisis is that investors are taking shorter term positions, reflecting the constant risk of more bad news emerging that could jolt financial markets.
A string of data has consistently shown foreign exchange volumes rising sharply.
ICAP reported record high average daily electronic spot trading on its EBS platform in 2008, while multi-bank currency trading platform FXall reported record high volumes in 2008 [ID:nLL613338]. FX settlement system CLS Bank also reported a 15 percent year-on-year rise in average daily volume in the first quarter [ID:nLE414086].
The growth in FX has also helped boost investment banks'
earnings. Europe's biggest bank HSBC
dbFX operates in 82 countries and offers trading in 32 currency pairs. (Reporting by Jessica Mortimer; editing by Stephen Nisbet)