James Kemp MD of Stentra
James Kemp MD of Stentra

FX Portals – segmenting the market?

Each FX trading portal has distinctive features attracting a different client base. James Kemp looks at whether they are segmenting the FX market and what overall effect that might have.

Electronic trading of foreign exchange has witnessed dramatic growth as banks take advantage of the opportunity to win greater flow and to streamline middle and back office processes, and clients see the increase in transparency and choice. In the last year, annual online foreign exchange volumes doubled to $8 trillion, and, amongst businesses already trading FX electronically, the proportion of business conducted through electronic systems rose from 32%, in 2002 to 43% (1). For clients, the increasing number of portals has undoubtedly brought benefits: greater transparency, tighter spreads and an opportunity to arbitrage between the different platforms. However, for banks themselves the race to “get a price in” and the requirement that they connect and trade across multiple liquidity pools in a consistent and accurate manner has highlighted infrastructure weaknesses. Banks’ profit margins are also squeezed and, not surprisingly, a number of more conservative...continued

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