With an estimated daily volume of $1.5 trillion, the global foreign exchange (FX) market is the largest in the world. The FX market is huge in comparison to the daily trading volume averages for US Treasury Bonds and US stocks. And a far greater portion of FX business is executed electronically-it can be expected to reach about 75% by 2002.
Additional Information
Highlights
Foreign exchange trading will continue to grow steadily over the years as commerce becomes truly global, defining segments of the markets distinctly as speculative, treasury, and custody.
TowerGroup estimates that today only 12% of FX trades (including single-dealer systems) are executed electronically, but we believe that the opportunity exists for that percentage to reach 75% in the next 18–24 months.
The collective influence wielded by the top foreign exchange trading banks allows them a great opportunity to minimize the impact of third-party systems.
The FX market is aligning itself with its customers by segmenting electronic offerings based on customer’s segment-specific FX requirements.
At this stage in electronic FX trading, the trend favors third-party systems, which retain an advantage of neutrality and reduce the opportunity for pricing collusion. Much of this trend results from the first-mover advantage possessed by the third-party systems, several of which are already in operation, while the consortium-based systems (FXall, Atriax) are not likely to begin trading until mid-2001. When these consortium-based systems emerge, they will present a built-in liquidity that will certainly threaten the current trend.
The big bank consortiums will succeed through sheer size and industry clout. Their taking business away from the upstart third-party systems will force vendors of those systems to focus on market segments that the consortium-based systems either overlook or disregard.
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