Are big FX banks need a new platform?


"The introduction of the new electronic trading technology would be very beneficial to the foreign exchange market, and could be directed to the large gaps efficiencies that currently exist," said David Orr, the head of Lava FX. "For example, banks would be able to benefit from cutting-edge solutions to mitigate the effects of the liquidity gaps. The most progressive and inventive platform will be well positioned, addressing technology needs currency trading community. "

Looking at U.S. stock markets, weather Ogg might be accurate. But, given the current climate in the FX, there are those who believe that "Connectors» (aggregators in the original) could actually exacerbate the problem, because it will make multiple platforms more vulnerable to hostile parties.

"The market has to be careful that the new technology will not exacerbate the problem of liquidity mirage. Joining the many outlets that offer the same price from the same supplier of liquidity, risk management will flow extremely tough for liquidity providers in the future, "said a representative of Deutsche Bank.

Market with a turnover of $ 2.5 trillion

How can the market, which according to the last three-year review of the Bank for International Settlements had a total daily turnover in the foreign exchange market in April 2004, more than $ 1.9 trillion, to have these problems? And how do they get worse, as the market becomes more?

A permanent Joint Committee on the currency market and the UK Monetary Committee of the United States, which are found under the auspices of the Bank of England and the Federal Reserve Bank of New York, respectively, have recently published data showing that the market grew by 17% in London and 20% in New York for six months from October 2004 to April 2005. Market participants say that such growth rates, as shown by the market in the previous six months, suggest that daily FX market turnover now exceeds $ 2.5 trillion.

Despite the fact that the market is trading at a large number of currencies and a variety of products, the main activity is focused on «majors» - the U.S. dollar, Euro, Yen and Pound Sterling. According to the Bank for International Settlements, the forward market is approximately 50% of turnover, and the spot market, which is a general term, which most people think, considering the FX, approximately one third of the activity. The rest of the volume consists of direct transactions, which are a combination of spot and forward transactions and options. Currency pairs, the volume of the euro / dollar is 28% of the market, the dollar / yen was 17% and the pound / dollar rate of 14%.

Each of the different segments of the FX currency itself is a huge market. The daily turnover of spot market is now estimated at about $ 800 billion a day. However, despite the huge size of the market participants in FX is often argued that the spot market is illiquid. This seems completely unimaginable. The main reason why this statement makes some sense is that FX trading is not centralized as many other markets.