New York, NY, USA
February 23, 2005
An Overview of the Cash Foreign
Exchange Markets
Report Published by Celent
Celent Communications estimates that 60 percent
of inter-dealer trading today is done on electronic platforms. The
dealer-client market is less electronic, at 43 percent. We predict that
electronic trading will grow to 90 percent in the inter-dealer market, and
70 percent in the dealer-to-client market, by 2007.  The
global forex markets are already huge, and growing at healthy rates. The
most recent global market survey, conducted by the Bank of International
Settlements, indicates that forex trades almost US$2 trillion each day.
The forex markets are actually a collection of smaller markets: cash vs.
derivatives, inter-dealer vs. dealer-institution vs. dealer–retail
investor, US vs. London vs. Asia, electronic vs. voice trading. In a new
report, An Overview of the Cash Foreign Exchange Markets,
Celent examines the inter-dealer and institutional cash forex markets,
which include spot, forward, and swaps trading.
The report examines the characteristics of
the inter-dealer and dealer-to-client markets, including industry initiatives
such as Continuous Linked Settlement. Although forex is a global market,
there are differences in the major regions, some which are highlighted in
the report. The report also examines barriers to electronic trading and
future market trends. Celent has also released a related report, More
Money, More Platforms: Profiling the E-Trading Vendors in the Cash Forex
Markets, which profiles the electronic platforms serving the
inter-dealer and dealer-to-client markets: EBS, Reuters, FXConnect, FXAll,
Currenex, HotSpot FXi, 360T, eSpeed, and Lava FX.
Celent predicts that electronic trading
will grow to 90 percent in the inter-dealer market, and 70 percent in the
dealer-to-client market, by 2007. The inter-dealer e-trading platforms are
growing bigger and more liquid over time, which should attract trading
interest from banks that are conducting their largest trades over the
phone. Banks that trade over the phone do so for several reasons. For
example, they may be looking to trade odd lots or broken dates, which they
cannot do electronically, or they may want to trade anonymously. It is
conceivable that the dominant electronic platforms will add this
functionality to steal more volume from the inter-dealer brokers.
In the dealer-to-client market, increased
electronic trading adoption will be spurred by three catalysts. Increased
standardization of forex technology through industry initiatives like
Continuous Linked Settlement and FIX make it easier for institutions
trading by voice to connect to one or many electronic platforms. Also,
pre-and post-trade support from these platforms is improving, which should
also attract interest from new customers. Finally, the hedge fund and CTA
communities, which have the highest rates of electronic trading, are also
the fastest-growing segments of the institutional customer base.
According to Jodi
Burns, senior analyst in Celent’s
Securities & Investments group and author of the report, "While
almost 50 percent of institutions claim to have no interest in electronic
trading, this attitude simply cannot persist. It is true that certain
financial products are not ready to be traded electronically, such as
complex credit derivatives and non-standardized interest rate derivatives,
but forex is not one of them."
The 26-page report contains 14 figures. A table of contents is available
online.
|
