Sang Lee Managing Partner of the Aite Group
Sang Lee Managing Partner of the Aite Group

Curing the Post-trade FX problem: Is it time for radical surgery?

In recent years, the FX market has witnessed the emergence of a new trend in electronic trading: algorithmic trading strategies designed to capture execution opportunities in increasingly automated and fragmented marketplace. This article examines the changing market reality in the FX market, assessing the potential for growth in adoption of FX algorithmic trading, as well as identifying possible pitfalls.

Market trends While the global financial market was collapsing in 2008, the FX market experienced tremendous growth, reaching more than US$4 trillion in average daily trade volume despite the decline in trading volume during the last couple of months in 2008. The rapid adoption of electronic trading, availability of cost-effective trading platforms, vibrant retail market, and growing market influence of high-frequency trading shops all contributed to the overall growth of the global FX market. Figure 1: Growth of FX Market Average Daily Trade VolumeIn 2001, approximately 480,000 FX transactions occurred daily. By end of 2008, average daily transactions had reached 1.78 million trades per day. The major G10 currencies have become increasingly commoditized with tight spreads, leading to growing interest in emerging currencies for those investors looking for higher margin adding to more volume in the FX market. Increased retail volume and major participation of API traders in the FX market have added...continued

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