The Nordics: What’s next for this already highly electronic FX market?

February 2021 in Regional Perspectives

We explore how the electronic trading market has been evolving across the Nordic region and what steps leading providers have been taking to meet growing demand for new technology and digital FX solutions.

The foreign exchange market in the Nordics region has established itself as a mainstay of European finance in the past 10 years.  Data from the Bank for International Settlements shows that Norway, Sweden and Denmark have all become solid centers for daily activity of FX – hitting $30 billion, $37 billion and $63 billion respectively when the bank’s triennial survey was last published in 2019. Finland is a smaller market by comparison, notching just $7 billion per day in volume. 

The growth in Denmark has been particularly pronounced, hitting more than $100 billion in average daily volume in the three previous surveys dating back to 2010, while Norway has come up from just trading single figures in the 1990s. Sweden has also been a steady climber as the global daily number crashed through the $6 trillion figure in the most recent survey. 

Their currencies are some of the most actively traded, too. The Danish krone accounts for $42 billion of the daily turnover, while the Swedish krona and Norwegian krone are responsible for more than $100 billion in average daily volume, above other popular currencies such as the Mexican peso and the Russian ruble. Finland adopted the euro in 2012.

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Matti Honkanen“Digital services are increasingly taking care of the repetitive parts of this flow, and humans only control that the right rules are in place for the machines’”

Highly electronic market

This steady growth has meant inevitable changes in how contracts from spot to derivatives products trade in the Nordics region. For some time now, FX trading in the Nordics has been highly electronic, which is a contrast compared to some other regions around the world. 

Matti Honkanen, Head of Next Gen FX at Nordea, says the region is now experiencing a “second wave” of electrification. 

“This means customers are streamlining the trading workflow by automating the manual tasks related to it. Traditionally, electronic trading has meant that customers manually figure out what to trade, type the trade specs in a digital interface and afterwards book them in other systems. Now the digital services are increasingly taking care of the repetitive parts of this flow, and humans only control that the right rules are in place for the machines,” he says. 

Much of this shift has come from the buy side, many of whom are demanding new tools and capabilities to manage the growing regulatory burdens and best practices that are being implemented globally.

For example, in Europe the introduction of the Markets in Financial Instruments Directive, or Mifid II, has presented asset managers with numerous challenges about how best to show they are executing in a way that meets new industry directives, while the FX Global Code – supported by many leading central banks and market participants – has forced a sea-change in the way professionals operate in FX. 

“SEB was very active, alongside the Riksbank, in developing in the FX Global Code from start and we continue to be involved to this date through the GFXC. The Code’s focus on ethics and sound business principles fits very well with our long-standing focus on ESG and we share this with large parts of the Nordic financial community, including many asset managers,” says Svante Hedin, global head of FX and commodities at SEB.

The Swedish bank found the introduction of the Code also helped foster debate among clients around principles of last-look and other topics. 

“SEB unequivocally does not and have not applied hold-time to last-look, and we think it is very important for the industry to drive even more transparency around such practices. The direct demand from this of course is largely in disclosures and in TCA tools. We continue to see more and more clients interested not just in algo execution TCA but also to rate their liquidity providers by market impact and other factors,” says Carolina Trujillo, head of e-FX distribution at the bank. 

Nordic bank providers were early adopters of mobile technology

Investment in technology

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Lars Wiberg“With further market fragmentation taking place, algorithmic execution will be an essential tool to manage the execution routes available…”

As a result of these new challenges for the buy side, banks have invested heavily to meet this demand, says Peter Bondesen, head of sales for the Nordics at BidFX, a leading cloud-based provider of electronic FX trading solutions that has many clients across the Nordic region. 

“Many Nordic banks have invested heavily in their pricing technology which is another indicator of the volumes shifting towards electronic trading. Although a lot of clients still require services from FX salespeople, they also have a need to analyse their trading efficiencies, which is why we continue to see advancements in the TCA space. The most advanced clients want to own their own data to be able to utilize all the information historically,” he says. 

“The technology investments have also improved the Nordic banks’ algo offering leading to the adoption of less liquid currency pairs which is another contributing factor behind the growth of electronic FX trading with these banks,” he adds. 

Bondesen has also started to see demand from across the Nordics for his firm’s data and TCA offering as traders know they must increasingly be on top of these areas. There is a demand for transparent data, deep tick-by-tick data rather than top of book, especially as traders want to analyse market impact once they start trading. Often the tailored pricing data is then compared with a mid-market benchmark.
Other toolsets that are popular involve being able to set specific criteria on the platform in order to adhere to best execution policies, for example in relation to the number of liquidity providers pricing, or current spread versus a historical average. 

“BidFX is investing in our data and TCA team to continue the development of our product suite. We are working on optimizing the timing of each execution based on our rich data sets. Ideally, an organization is using analytics to not only meet regulatory burdens, but to also serve as a feedback loop to improve execution.” he says.
The company also sees an increase in the demand for API solutions, which shows a shift away from manual trading to increased automation in FX trading. Large buy-side firms in the Nordics are also using their platform to access multiple ECNs and even route working orders to these venues to try to achieve cost savings.


The extent to which clients are now relying on technology to trade and manage FX risk was tested last year during the height of the Covid-19 crisis. Most of the market was caught off guard and there is some evidence indicating the FX markets were less efficient during the spring of 2020 compared to previous quarters. The buy side has broadly adopted the use of FX algos, but in times of increased volatility, they would tend to favour risk transfer prices with their most trusted providers. 

However, during the height of Covid-19, this did not happen and the ratio of algo vs risk transfer remained high. Market makers are automatically pricing also bigger tickets and 3 out of 5 trades over $10 Million were executed using algos, according to Lars Wiberg, Product Manager, FX Solutions at Itiviti, a leading provider of connectivity, trading and compliance solutions which is headquartered in Stockholm.

“The lockdowns and working remotely could be a factor, but it is probably safe to say that algorithmic trading and automated pricing are here to stay,” says Wiberg.

The extent to which algorithmic trading is coming into a wider range of products in FX is also playing out in the Nordics. Wiberg notes that up until recently, algorithmic trading was concentrated in FX Spot, but there is an increased use of algos also in instruments with mainly RFQ-type workflows, like forwards and swaps.  There are also more examples of predictive data being implemented into workflows and alert systems that will help the buy-side by reducing the need to constantly monitor the algo and also act opportunistically should a market event happen. “With further market fragmentation taking place, algorithmic execution will be an essential tool to manage the execution routes available and the digital transformation is definitely going to continue being an important theme going forward,” says Wiberg.

Svante Hedin“We are in general moving towards real-time payments and looking further ahead, cross-border real-time including FX.”Carolina Trujillo“We continue to see more and more clients interested not just in algo execution TCA but also to rate their liquidity providers by market impact and other factors.”

Evolving customer needs

To meet evolving demand for FX e-commerce toolsets from customers, Nordic banks have been busy readying capabilities to tap into what their clients want. 

For example, Nordea has had a mobile trading service available for some time, but it has spent most of its energy on improving other toolsets. 

“Our new FX solutions have focused on exactly this. Typically it is the pre- and post-trade activities that are most time-consuming. So it is natural that the we see improvements especially there. We can see that it is changing the customers’ expectations and demands; they are not anymore content with a platform that requires a lot of work from the user to do the pre- and post-trade activities manually on their own,” says Honkanen.

Nordea has recently launched a set of automated FX solutions under the award-winning AutoFX umbrella ranging from automated forecasting and liquidity management to rule-based trading and hedging. The solutions are designed to deal with number of problems and inefficiencies associated with the traditional FX processes as well as giving companies tools and insights for strategic decision making. “FX trading has for a long time been a field where everything is digital, but still manual. This is changing now. Our AutoFX solutions will take care of this manual number crunching not only during trading but also during pre and post-trading. We have either developed our own tools or partnered with the best players in the industry to ensure that we have an automated solution available for each customer need.“ says Honkanen.

Digital applications are a major growth area in the Nordic region for SEB, too. On the retail side, Nordic bank providers were early adopters of mobile technology and have been innovative in bridging mobile digital solutions with the traditional, for example through OCR-scanning of paper invoices by using the camera on the phone/tablet. 

“Institutional wholesale markets have been a little bit slower to move onto mobile platforms. We are in general moving towards real-time payments and looking further ahead, cross-border real-time including FX. We are paying close attention to that area of growth and are in many discussions with clients and third parties on these topics,” says Hedin. 

“Working together with clients is always a preferred alternative for us so we explore a lot of the possibilities together with them to make sure the offering is really appropriate for their needs,” says Trujillo.

Looking to add value

Much of the industry focus is on trading at the point of execution while also acknowledging broader contentions in liquidity, credit, and pre- and post-trade transaction cost analysis. While clearly those are important topics, particularly in markets such as the Nordics, another area of focus for SEB has been the notion of what led to the transaction in the first place. 

Concurrently, the sell-side is often strong on technology, connectivity and has assets in large amounts of proprietary data. They have strong competence in risk management and analytics. So the larger question Nordic banks have been grappling with is how to wrap this up into services that truly add value in other parts of the clients’ process flow – be that a corporate treasurer in a large industrial company struggling with their forecasting, or a financial institution making hedging decisions. 

“To that end we are putting a lot of effort on a seamless API offering across product areas, and also analytical and modelling tools that deepens the dialogue between our staff and their client contacts,” says Trujillo.

The distribution capabilities that SEB has is also key when deploying an FX algo offering for example. The key value proposition of its algos is access to the bank’s internal pool of liquidity, and the ability to cross match with other client flow ranging across global institutions and Nordic retail. 

“Our reach is unique and second to none when it comes to Scandies. This is really what makes a difference for our clients and they are so pleased with the execution that this is where our focus lies. The enhancements have been focusing a lot on this area, both in terms of the execution itself and in terms of making that very clear in the TCA reports,” says Hedin. 

Conceptual architecture for the e-krona pilot

At BidFX, the trading platform has a unique view into Nordic banks’ capabilities. In general, Nordic providers who price into BidFX have very advanced technology that has been configured to match the firm’s advanced clients’ workflow and pricing requirements. Other providers see pricing based on the industry standard tiered levels, but newer pricing solutions like BidFX offer tailored pricing for each client. Globally, BidFX is experiencing a high demand in streaming prices for forwards, swaps, options and NDFs (even broken dates). “The Nordic banks know their strengths and tend to compete in the local pairs more than anything, and the innovations we expect are streaming rates on all dates resulting in a lower ratio of RFQs compared to hitting streaming rates.” says Bondesen. 

BidFX also sees banks knowing the local flow in fixed income and money market instruments with derived FX flow coming from these trades. The Nordic banks have specific knowledge pertaining to their local currency which allows them to skew prices efficiently. Building better electronic solutions has allowed clients to tap into this pool of knowledge while trading in their name, which allows trading on ECNs and the primaries. 

“Deeper liquidity combined with advanced tools to access this liquidity efficiently means that the value proposition justifies the fees charged,” says Bondesen.


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Peter Bondesen“The most advanced clients want to own their own data to be able to utilize all the information historically,”

Some of the more promising areas of electronic trading growth in new products is the options market. For the moment, Nordea has been focused on more basic products, for the simple reason that there the customer base is larger, and the digitalisation is easier to implement. But that will be the logical next step, says Lars Henriksen, FX algo trading at Nordea. 

“It is obvious that we need to look more at the electronic option trading. The fact is that customers would like to have more and more digital trading possibilities across the board,” he says. 

At SEB, electronic distribution and communication tools are just as powerful in FX options as they are in other FX subproducts. 

‘We will quite happily price up an option electronically, and that can bring many efficiencies to both side of the trade with respect to STP booking etc. However, the uptake has been relatively slow and the fully electronic flow still constitutes a relatively small part of the total,” says Trujillo. 

Next generation technology

Advancements in FX are not just limited to electronic trading either, but use of new technologies such as blockchain, artificial intelligence and machine learning. 
Nordic banks have several research-oriented projects where new technologies are an important component. One area of investigation targets state-backed electronic currencies (CBDC – Central Bank Digital Currencies) like the E-krona, and the effects such developments could have on FX markets.

Banks are increasingly partnering up with other financial technology firms, as in the fast-developing world no one can take care of all the customer needs on their own, according to Honkanen.

“The use of Machine Learning (ML) and Blockchain technologies have been quite limited, apart from the execution algos, but we are all the time increasing the use of ML in many places. That’s why we have also a dedicated data analysts in our small development team,” says Honkanen. 

At SEB, they have been partnering with universities to integrate advanced mathematics in the improvement and automation of their clients’ processes. Another area that SEB is exploring is the use of machine learning to improve products and services. One such project is a joint research case between SEB and KTH supported by the Wallenberg AI, Autonomous systems and software program (WASP). One aspect of the project aims at improving trade execution in FX using reinforcement learning, and other promising areas of application are also under consideration.

WASP is an example of a Nordic based technology focused research initiative that could have an impact on FX trading

Future trends

As an inevitable consequence of the electronification, coupled with further fragmentation, Lars Wiberg at Itiviti believes the FX market, including the Nordic region, will likely see a substantially increased spend on technology and market data. The company thinks full service vendors coupled with niche players, like providers of Market Data and analytics, will definitely see a lot of investments coming their way in the next 3-5 years. 

Looking specifically at order management, the provider sees banks and brokers using systems developed specifically for FX, either in-house or by a specialised vendor. FX has been separated from other asset classes mainly because of the interaction between the client and the bank and the OTC nature of the business. Given few orders are executed on a pure agency basis, an ideal technical solution should integrate well with internal matching, risk management and hedging tools.

“To help solve these and other issues, many financial institutions are opting for  a component-based technology provider. They may be looking for a matching engine which would allow them to apply their own pricing logic, or they may want to implement customised business logic directly in the FIX layer without making the ROE unnecessarily complex for clients who want to trade with them,” says Wiberg. 

“Using a vendor with extendable logic and the option to develop bespoke functionality will enable institutions to scale down on workflows that are not required, while offering flexibility to customise the ones that are.” 

Wiberg believes the market will most likely see further integration of OMS/EMS, just like in the equity space and an extended use of Smart Order Routing based not only on price, but on quality parameters like fill ratios, adverse market moves, latency, complete with full audit trails and pre and post-trade transparency.