Pathways for achieving higher speed FX connectivity

The increased adoption of Algorithmic FX trading coupled with the growth of currency trading On Exchanges and the launch on new ECNs is making connectivity a much more complex and potentially costly issue for trading firms wanting to link into increasingly numerous sources of FX liquidity. Dan Barnes explores some of the issues.

High-speed trading is now rife in the foreign exchange markets, as a result of infrastructure improvements and a growth of non-bank financial market participants.  The Bank of International Settlements (BIS) reports that 64% of spot FX trades were executed electronically in Q4 2013, a figure that could reach as high as 95% if it included voice trades that are booked electronically. Daily turnover across FX instruments has risen year-on-year to US$5.3 trillion in 2013 – of which around US$2 trillion is spot, up from the US$4 trillion daily in 2012. The majority of that growth stems from non-bank financial institutions, according to the BIS. The multiplicity of smaller trading shops, shunning voice is making market connectivity more complex and making speed more important. Some of the biggest banks are shutting down a substantial amount of their trading businesses across commodities and energy, while rules that will separate the capital buffers of retail banks from those supporting trading...continued

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