e-Forex Magazine | e-FX Industry Report | Business as usual: FX trading platforms help to achieve more with less
e-FX Industry Report : Business as usual: FX trading platforms help to achieve more with less
First Published in e-Forex Magazine July 2009
Andy Webb
The current economic situation is unique for a combination of reasons, but one of the most prominent is the combination of a commercial slowdown with an exceptional decline in many bank balance sheets. While this has numerous implications, the effect on global FX trading volumes is particularly conspicuous. Andy Webb explains how FX trading platforms have a duty in such an environment to assist participants in achieving more with less.
Liquidity in any market is to some extent a self-fulfilling prophecy, based upon collective 'I will if you will' confidence. As a result, a decline caused by fundamental factors can easily be exacerbated as participants lose faith and move to the sidelines. In the worst case, this behaviour accelerates into a downward spiral resulting in a drastic reduction in liquidity.
Happily, the largest FX trading platforms have proved relatively resistant to this doomsday scenario. Nevertheless, it is incumbent on these platforms to do all in their power to facilitate the efficient execution of business at current liquidity levels. Apart from fulfilling the immediate need, any initiatives that aid traders in this respect by implication also boost future confidence and inclination to participate.
Reading the numbers
The need for such action is apparent; the statistics speak for themselves. Figure 1 is drawn from a recent report by David Poole of ClientKnowledge and shows the general fall in buyside FX activity over the past six months based upon interviews with more than two hundred high volume FX traders. Figure 2 gives an insight into the sellside perspective, indicating a sharp decline in Tokyo market broker activity since October 2008. A similar situation prevails in FX futures and options; Figure 3 shows a commensurate decline in activity on the CME. While both FX spot and derivatives have shown signs of recovery more recently, overall activity is still well below typical levels for 2008.
