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Focus: FX Trading-System Boom Fuels Liquidity Concerns

By 5 Jul, 2012News

Dow Jones

In the past, an influx of new FX platforms to the market created a boom in trading volumes and brought about cheaper trading for everyone, but this time around it appears the arrival of new FX platforms is set to be different and potentially hurt global volume growth. Eva Szalay investigates the future of electronic trading in FX markets.

Out of all the platforms which appeared around the turn of the millennium, only a couple have survived to this day, including the recently listed FXalliance Inc. (FX).

One new contender to the race, traFXpure, run by brokerage Tradition, was brought into the market with the aim of trying to reducing the importance on speed in trading by recreating many elements of the trading environment that banks relied on before high-frequency took root almost 10 years ago. It is is dubbed to be the latest challenger to ICAP’s EBS, which currently holds half of a duopoly in bank-to-bank trading.

Frederic Ponzo, Managing Partner, GreySpark, raises the concern that with all these extra platforms there may not be enough volume to go around, as we saw with the equity markets around the time of the dot-com boom. He highlights how the larger players were built at the peak of platform innovations and that now much of that infrastructure is relatively unused.

Ponzo sees that electronic trading in FX is getting very competitive, with the development of platforms and new offerings which increasingly provide specific customer segments and are becoming more niche.

The article continues to explore the various outcomes that the influx of platforms will have on the FX trading landscape, and hints that the FX market may be heading back to how things were 10 years ago, with lower volumes and far less high-frequency trading.

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