Nicholas Pratt
Nicholas Pratt

Emerging Market FX trading Digital innovation goes from strength to strength

Trading in emerging market currencies is growing rapidly. Nicholas Pratt examines how the use of automation and innovation in digital technology will be critical in managing the operational risk and market volatility that comes with that.

The last triennial survey of FX trading volumes and trends published by the Bank of International Settlements (BIS) in December 2019, showed that FX markets for emerging market (EM) currencies grew more rapidly than those for major currencies.  In fact, between 2016 and 2019, EM currency trading rose by 60%, almost double the global average (33%), and by the end of 2019 accounted for almost 25% of global turnover. The BIS ascribes this growth to several factors such as the growing appetite among global investors for EM assets in their search for yield. It should also be noted that banks enjoy greater profitability by offering more exotic products. Between 2016 and 2019, there was also an increase in the share of trading generated by hedge funds and proprietary trading firms. The presence of more non-bank financial institutions was hugely driven by the electronification of FX trading, states the BIS. This enabled smaller players to access markets that had been traditionally dominated by inter-dealer...continued

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