By Brad J. Bailey Research Director at Celent
By Brad J. Bailey Research Director at Celent

The FX trading technology landscape - key trends and forces at play

FX technology is at an interesting juncture. The FX market is going through structural and secular shifts and absorbing regulatory and capital changes that have shifted trading volumes. Technology demands are increasing as the market fragments and digests regulatory change.

FX technology is at an interesting juncture. The FX market is going through structural and secular shifts and absorbing regulatory and capital changes that have shifted trading volumes. Technology demands are increasing as the market fragments and digests regulatory change.

This trend is creating an ecosystem marked by strong growth in data and demand for new ways of measuring, transacting, sourcing liquidity, while reducing complexity.  This is particularly true with more dealers offering increased electronic services such as algos, or active hedging overlays. Similarly, the buy side continues to take a much more active role in FX trading, and its own liquidity sourcing. As such, FX technology will morph over the next several years as it looks to bring efficiencies to spot, forwards, options, and swaps, and drive better executions and cross-margining while wringing out costs.

Meanwhile, the low volatility years seem to be behind us. We are at a point where a highly fragmented market is looking for solutions to solve liquidity sourcing, trade execution, and fair access to markets. Many of these challenges are being addressed by innovation in front office technology. Key forces at play in FX are discussed in Table 1.

Table 1: The Forces at Play

Key Trends in FX Technology

Firms are looking at their technology choices in FX in new and innovative ways. They are merging historically separate liquidity, protocols, and functionality, creating new opportunities to drive front-to-back efficiencies. 

The FX technology space has seen considerable changes as broader sets of market participants increase their full electronic presence. Electronic trading continues to grow with trends that have occurred in FX spot moving to forwards, options, non-deliverable forwards (NDFs), and swaps.

  • The next wave of regulation is here. MiFID II has driven operational, logistical, and technology changes particularly toward how firms are managing their workflows and data. The Code of Conduct adopted in May 2017 is approaching its second birthday with many firms adhering. 
  • Demand for best execution in FX continues to increase. Firms are looking to increase their trade analytics process driven by regulatory, best practice, economics, and client demand. End users, clients, investors, global regulation, and best conduct in FX have created a new desire for transparency, driving new data providers, compliance tools, analytics, and next-generation TCA.
  • Trading volume is being dispersed and fragmented over a greater number of venues, driving the need for better and easier connectivity, aggregation, and access to colocation.
  • Major FX trading firms continue to grow their distribution directly through their client portal or service delivery platform (SDP) and through a multitude of other avenues. There are increases in pricing, liquidity access, algorithms; more option functionality; robust reporting and analytics.
  • Investment banks continue to invest in their SDPs, taking lessons in customer engagement from the retail side and applying them to a holistic offering for clients. Within FX, this is execution of spot and products, hedging, PnL, trade management, and margin requirements. In certain cases, banks are expanding to the full suite of services rates, treasury workflows, and so on.
  • White labelling by vendors and financial institutions continues to be a major area of growth in FX technology.
  • Demand is higher than ever for cross-asset functionality when client firms are selecting FX technology.
  • Alternative (or non-traditional) liquidity providers are increasing their interaction with flow across the market and continue to become a more substantial component of trading volume, across the platform landscape and point-to-point liquidity spaces.
  • Whatever one thinks about cryptocurrencies, and where they sit compared to FX, the institutionalization of Bitcoin etc. is driving considerable data and technology needs. This area has been a font of innovation and major spending with vendors that can offer pricing, data, aggregation, and so on.

Leading vendors are investing in capabilities that offer access to multiple types of liquidity, managing workflows, increasing the breadth of products; for example, by simplifying modular offerings to solve the specific needs of bank, corporate, real money, and hedge fund clients. 

Others seek to offer much more advanced transaction cost analysis and best execution tools. From an overall perspective, we continue to see financial institutions with a variety of vendor solutions, to those looking to solve their full FX needs with a single vendor, or utilizing a modular approach. Broadly, however, we see capital market firms relying heavily on vendor solutions across a spectrum of demands. 

Even firms with large internal IT structures are integrating vendor solutions for some or all their FX needs. The FX technology ecosystem is growing and is composed of the following components in Table 2.

Table 2: Components of the FX Ecosystem

FX Technology Users

Table 3 segments the needs of FX dealers as well as the many types of consumers of FX liquidity and services.

Table 3: Demands and Key Technology Trends for FX Dealers and Client Segments


At this stage FX is becoming highly automated in the front end, especially in the spot FX market. In the front end we will see greater nuance to react to a changing market. A time of volatility is a great time to be prepared to be more automated. We also expect to see more of the efficiencies in the spot market to expand to the FX products space. Furthermore, we expect to see considerable automation in the middle and back office stripping out considerable costs for the buy and sell sides over the next several years.