Today, 56% of foreign exchange trading occurs electronically, but by 2010 the proportion will have risen to 75%. Or so claims a new report by consultants Aite Group on the largest and most liquid market in the world.
Aite says technology has played a crucial role in the evolution of the FX market in recent years. Dealing banks, inter-dealer brokers, asset managers, hedge funds, and even the corporates have successfully leveraged technology, not only in terms of seeking competitive pricing and execution, but also in terms of post-trade processing, thereby substantially lowering the inherent risks associated with global FX trading. Though the electronic FX market continues to evolve, it is growing in terms of diversity and functionality and is not moving into a centralized exchange model.
"While growth of leading ECNs such as Hotspot have provided the FX market with a glimpse of the future of FX market structure, a centralised single platform solution to the electronic FX puzzle appears to be years, if not decades away," says Sang Lee, research director at Aite Group. "The enormous size and the diversity in its market participants have enabled the FX market to bring about and nurture the growth of multiple execution venues. Despite the overall market success to date, there is a certain level of uncertainty over whether or not the FX market can continue to support multiple platforms as the convergence across customers' needs as well as inter-dealer and client-to-dealer markets increase over the next few years."
The Aite report evaluates the growth potential of the leading electronic FX players: CME, EBS, Reuters, FXall, FX Connext/Currenex, Hotspot FXi, LavaFX, MilanFX, and FXMarketSpace.