Trends in FX Trading 2014: Part 1


GreySpark Partners have recently posted a report pertaining to the various explorative elements of the ripe but new A2A market, which stands for (all-to-all) in direct correspondence to Forex trading in 2014. The report stresses on how, with the massive increase in trading frequency, many buyside companies have now placed themselves on the side of spot Forex trades in the market areas which were before considered to be only used by Forex brokers and dealers.

After 2008, the occurrence of circuitous buyside-to-buyside spot Forex trading has increased when you talk about inter-dealer venues. The investment banks have also adapted to currencies dealings and business models to remain less competitive in the venues. Prime brokerages investment platforms which were run by inter-dealer spot Forex locations are a great example of the ground breaking technological progress and solution building which significantly aided in the expansion of buyside-to-buyside trading quotations and volume.

This slow and steady movement in spot Forex liquidity enables buyside market traders to demand the fact that a variety of electronic investment and trading platforms and solutions be sold to them from over the sell side.

According to the report published last month by GreySpark Partners which is a capital market consultancy firm based in London, it was revealed that buyside companies have now been trying to excessively access spot Forex trading via numerous spot Forex companies which were considered to be bank-only trading platforms. This report also gives a detailed analysis of how this has affected the Forex market, especially when talking about Forex trends in 2014. You will see that this recent development is leading to the rise of A2A markets which has the potential to spread over a variety of other instrument classes for example, Forex options and non-deliverable forwards in the future.

Senior consultant and co-author of the GreySpark Partners report on Forex trends, Russell Dinnage said,

“A GreySpark assessment of bank FX e-trading service offerings and a likewise survey of buyside opinions of those service offerings showed that, while all the banks reviewed offer strong principal trading business and dealing models that their clients find useful, the competitive battleground of the future is in the agency trading space. The leading FX banks must continue to develop e-trading technology offered to their clients via single-dealer platforms to build new agency dealing models that simplify and bring efficiency to the provision of liquidity or access to liquidity venues to their customers, which will ultimately reduce costs across the board.”

Direct Market Access

Another thing that was disclosed in the report is the fact that there are currently 3 top level banks that now provide (DMA), which stands for direct market access to their buyside customers to indulge in e-trade spot Forex within the market’s best inter-dealer platforms for spot Forex. There are various other banks that too, provide their clients high-speed connectivity to inter-dealers for spot Forex systems requiring the utilization of bank ID access codes to conduct spot Forex trading.

What this means is that while dealer and broker banks for Forex still maintain a bigger control of the extent of the liquidity that the market has in a spot Forex platform of an inter-dealer in a given day. The banks too are encouraging buyside customers to determine the extent of the volatility or the churn in the market. The banks are also encouraging their clients to identify the extent of market volatility in the spot market of Forex by making the entire process simpler for them. This effectively enables their client to touch base with various other market players, such as hedge funds.

The extent of buyside-to-buyside Forex spot trading has expanded significantly since 2008. GreySpark Partners agree to the fact that these alterations in Forex spot trading will place a benchmark for even higher trading volume in other Forex trading options. The fact that the overall level of Forex trading is increasing considerably, electronic Forex trading could result in lucrative equities, for instance, A2A market infrastructure for Forex spot trades to occur.

Forex options will essentially be traded via banks using multi-dealer trading venues and platforms with most of the venue becoming worthy of selection for the liquidity of calls and puts. On the other hand, it has been seen that sellside NDF trading could evaporate in the near the future, with ETF (Exchange Trade Funds) contracts being predominantly used to imitate market liquidity in currency markets that the instruments at present provide.

GreySpark Partners’ managing partner, Fredrick Ponzo was reported as saying,

“In 2014, already high levels of e-trading in the FX market are causing all-to-all market structures to evolve, especially in spot FX, where evidence of an equities-like trading environment is common knowledge to the majority of market participants. The next steps in this evolutionary journey will be for electronification of trading to increase in other instrument classes – standardised FX options could become nearly fully electronic in the next few years. These changes mean that the balance of power in the FX market is now shifting toward the buyside, away from the sellside, and banks must continue to find new ways to compete with each other for client flow.”

Concluding Thoughts

Overall the GreySpark report on FX trends for this year carefully evaluates electronic commerce and e-trading shifts and movements in trends which currently affect the Forex market along with the Forex options and the NDFs. However, it is important to note that the GreySpark report is in no way a prediction in regards to the rise of A2A markets in Forex.

The GreySpark report is a combination of a string of different reports which include ‘Trends in Equities Trading’, and ‘Trends in Fixed Income Trading 2014. The main aim of the GreySpark report on Forex trends is to streamline the variety of options offered by Forex trading and other products that are provided by the sellside this year along with promoting a bunch of other trading solutions and tools on a multitude of dealer trader platforms. So, this will enable you understand the trends in FX trading to a certain extent.