Thursday, June 26, 2018 Stamford, CT USA — The electronification of foreign exchange trading has entered a new phase.

After growing 72% between 2007 and 2014, the share of global FX trading volume executed electronically has been flat for the past four years. A new report from Greenwich Associates speculates that this plateau of FX e-trading might represent a new equilibrium level for the market and signal a move into the next phase of innovation.

“Though the data show that the level of e-trading in FX may have reached an equilibrium, innovation and competition among venues has most certainly not,” says Ken Monahan, Senior Analyst in Greenwich Associates Market Structure and Technology practice and author of the new report, As FX E-Trading Growth Cools, Competition Among Venues Heats Up.

In fact, stagnant growth for e-trading volumes relative to voice trading has intensified competition among electronic trading venues. FX traders continue shifting significant volumes between and among venues, depending on style and region. “On many trades, the most important question for traders now is not whether to trade electronically or to call a dealer, but rather, which electronic venue to use for execution,” says Ken Monahan, adding that the competitive features, price and service quality of different venues are often not directly comparable, complicating routing decisions.

Major FX dealers are also left deciding how to allocate scarce technology resources on improvements to their service offering, and how to allocate capital—between providing liquidity on their own single-dealer platforms and improving their presence on top multi-dealer platforms. Given the criticality of both to major dealer franchises, the decision is not one of either-or but exactly how to tackle each.

Mapping the FX Market Structure
The new Greenwich Associates report examines the state of foreign exchange e-trading among corporate and financial market participants, identifies the top electronic trading venues, analyses the competitive landscape, and looks at how the intensifying competition among platforms is changing the global FX market structure.