Expert View

Are banks set for a return to the FX market?

Mathieu Ghanem, Managing Director at ADS Securities, reflects on the last decade’s market changes, and examines the future of FX…

Are banks set for a return to the FX market?In the last decade, we have experienced a period where access to liquidity was so easy that FX prime brokers fought each other for business. The financial crisis took FX trading away from the big banks and led to the development of a thriving institutional and retail sector, which also spurred a technology arms-race to create extremely low-latency trading platforms.

The industry was riding high until the SNB crash. At this point liquidity dried up, the majority of the FXPBs closed, and regulation began to drive strategy.

If you worked through these events, and managed to navigate through so many changes in such a short period of time, you will understand why I am hesitant to suggest what the future holds for FX.

FX represents largest global market

In the last 10 years, despite all the changes, FX has established itself as an important asset class, and is now the largest market in the world. From the institutional trading positions, through to the many millions of retail traders, FX is now part of most portfolios. Ease of access has made this the product of choice for millions of traders.

Everything has been set-fair for online traders across a number of assets, and through a range of FX products, daily volumes are $5.1 trillion a day

The strategies of central banks with aggressive currency protection through quantitative easing programmes have created one of the single longest global expansionary markets. We are seeing record levels in equity markets and a move to passive trading, with indices outperforming stock-pickers. Everything has been set-fair for online traders across a number of assets, and through a range of FX products, daily volumes are $5.1 trillion a day.

Can we expect this to continue?

We are already seeing substantial changes driven primarily by regulation. The volumes may be maintained but the structure of the market is certain to change.

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