By end of 2010, Aite Group estimates that close to 75% of all FX trading will be done electronically, up from 56% at the end of 2006.
A new report from Aite Group, LLC, examines the growth of the electronic FX market and looks at the potential market structure over the next few years. In particular, it focuses on the impact of electronic trading on the overall evolution of the FX market structure, as well as the changing profiles of market participants.
The global FX market has become one of the most sought after markets on Wall Street. As it has evolved from a by-product in cross border transactions to a legitimate asset class, the make up of FX market participants has evolved, too. Once dictated solely by banks, non-bank players, including asset managers, hedge funds, CTA, and proprietary trading shops now play an active role in the market. They also drove the adoption of new technologies to achieve competitive pricing and execution, improved post-trade processing, and reduced risk.
Electronic trading in FX has been increasing at an impressive rate. At the end of 2006, 66% of the FX inter-dealer market ran on electronic trading platforms. On the client-to-dealer market, approximately 45% represented electronic trading. Overall, 56% of all FX trading occurred electronically at the end of 2006. By end of 2010, Aite Group estimates that close to 75% of FX trading will be done electronically.
"Technology has played a crucial role in the evolution of the FX market," said Sang Lee, research director at Aite Group. "Dealing banks, inter-dealer brokers, asset managers, hedge funds, and even the corporates have all successfully leveraged technology not only in terms of seeking competitive pricing and execution, but also in terms of post-trade processing, thereby substantially lowering inherent risks associated with global FX trading. Not surprisingly, the adoption of electronic trading has moved from a novelty to become a competitive necessity."