Trading in FX (Part 1 of 3): Current Market Overview, Challenges and Opportunities


Part One of the series provides an overview of today’s global FX markets and identifies some of the challenges and opportunities facing market participants.



The global foreign exchange (FX) market has enjoyed a period of sustained growth in the last ten years, from around $2 trillion average daily turnover in 2004 to today's levels of around $5.3 trillion.

As the world's most heavily traded and most liquid asset class, FX presents a wide range of opportunities, not just for the market participants themselves but also for the entire ecosystem of technology vendors and service providers that support the market.

However, despite this continued and sustained growth, these are challenging times for the global FX industry:

  • Since the global financial crisis of 2008 and the resulting drop in interest rates across G10 currencies, volatility has been consistently low, making it difficult for firms to generate alpha in FX markets. Although volatility has increased in recent months, it remains to be seen whether or not this is the start of a longer-term trend.
  • Greater electronification of the FX markets is forcing firms to re-think how they operate as increased competition and a fragmented market structure continue to drive down margins. This move towards electronic trading also presents a number of opportunities, as we will discuss further in this paper.
  • The growing burden of regulatory initiatives such as Basel III, Dodd-Frank, MiFID and EMIR is having a significant impact on firms across the industry, many of whom are being forced to revise and adapt their business models in order to comply with new legislation.

All of this makes for a rapidly evolving market, full of possibilities as well as many challenges.

This three-part series looks at the various factors that firms across the ecosystem of global FX markets – from the buy-side, the sell-side, and the supporting community of technology vendors and service providers - should consider in order to, not just survive, but to thrive in this dynamic and ever-changing environment.

Part One of the series provides an overview of today’s global FX markets and identifies some of the challenges and opportunities facing market participants.

Table of Contents

Current Market Overview 5
FX Market Participants 5
FX Market Structure 7
Regulatory Environment 8
Market Challenges and Opportunities 10
Volatility 10
Liquidity Provision 11
Internalization 12
Principal vs Agency Business 12
Pricing Transparency 13
Emerging Markets FX  13

More In This Series

Part Two: Innovations and Trends
Part Three: The Equinix FX Ecosystem


Equinix, Inc. (Nasdaq: EQIX) operates a global interconnection platform of more than 200 International Business Exchange™ (IBX®) data centers in 52 markets in the Americas, EMEA, and Asia-Pacific. Our mission is to protect, connect and power the digital economy.
CONTACT
Equinix
1.800.322.9280
  Company Website
  Facebook
  Linkedin
  Company Blog
  YouTube
  RSS Feed
  Google +