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FX e-trading set for new phase of innovation

The electronification of foreign exchange trading is set for a new phase of innovation, according to a report from Greenwich Associates. The report, As FX E-Trading Growth Cools, Competition Among Venues Heats Up, examines the state of FX e-trading among corporate and financial market participants. It sets out the theory that FX e-trading might be entering a new innovative phase, having reached a plateau in the past four years in terms of share of global FX trading volume executed electronically. The report argues that, having grown by 72 per cent between 2007 and 2014, the growth of global FX e-trading has been flat for the past four years, perhaps signalling a new equilibrium for the market.

According to Greenwich Associates's Ken Monahan, while the level of e-trading has stabilised, there is still a great deal of innovation and intensified competition among e-trading venues. A further complication in choosing an e-trading venue is that the competitive features, price and service quality of different venues are often not directly comparable. He explains: “On many trades, the most important question for traders now is not whether to trade electronically or to call a dealer, but rather, which electronic venue to use for execution.”

The report also notes that large FX dealers are under pressure to improve their services but don't have sufficient technology resources to address all problems. Many face the choice of either providing liquidity on their own single-dealer platforms or improving their presence on top multi-dealer platforms but the report notes that both are critical and major dealers must look at how to tackle both.

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