Bob McDowall Research Director at TowerGroup
Bob McDowall Research Director at TowerGroup

E-Forex and the Push for Best Execution

Foreign exchange (FX) is a commodity, traded both spot and forward. It is the most liquid, globally traded commodity, available nearly 24x7. FX is traded over the counter (OTC) in more locations than any other commodity or financial instrument. Facilities now exist for all classes of investor to buy and sell foreign exchange electronically as a commodity and packaged as a financial instrument, such as an exchange traded fund, mutual fund, or contract for differences

What factors are creating the need for demonstrating “best execution” in the FX market? Routinely, banks and financial intermediaries have provided electronic access for commercial organisations to buy and sell foreign exchange on a preapproved basis, both spot and forward. Through electronic access, commercial organisations have been able to settle commercial transactions and manage their foreign exchange and their exposure to overseas transactions by hedging their risk through forward purchases and sales of foreign exchange. These facilities have been extended to financial investors, financial institutions, and retail investors that buy and sell foreign securities and wish to lock in the purchase cost or sales proceeds by conducting a simultaneous foreign exchange transaction. The foreign exchange market is both highly liquid and volatile. These attributes attract retail and institutional investors that seek short-term and medium-term gains by trading foreign exchange, treating it as a...continued

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