e-Forex Magazine | FOCUS | Making sense of the FX connectivity conundrum
FOCUS : Making sense of the FX connectivity conundrum
First Published in e-Forex Magazine July 2007
Chris Hall
Foreign exchange is the most inclusive of financial markets and has used technology to lay out the welcome mat to all-comers. Initially the preserve of the inter-bank market, electronic platforms have been developed for corporates, asset managers, hedge funds and now retail investors. In democratising foreign exchange, the banks have set themselves the challenge of supplying liquidity to multiple market sectors competitively, while the buy-side has been quick to realise that best use of technology a critical factor in obtaining best price.
Although the FX market's migration to electronic trading is overwhelming, it is far from complete. Just over half of all FX trading (56 per cent) took place electronically in 2006, with the inter-dealer market (66 per cent) still leading the client-to-dealer (45 per cent) sector, according to Aite Group. The research firm predicts 75 per cent of FX trading will be done electronically by 2010. This combination of overall volume growth, diversity of participants and ongoing migration to electronic trading venues has put connectivity top of the FX agenda.
Connectivity is key
"Connectivity is key and will continue to play a major role in how the market develops," says Sang Lee, Managing Partner, Aite Group. "To the extent that this is a fragmented market, if you aggregate it from a user perspective, you can consolidate it into one single view. Leading players don't want another intermediary aggregating their prices to enable even greater transparency. But it's happening already; hedge funds are using their own technology to aggregate prices from different venues."