Much has been made of the struggles of speculators to make money in FX in recent years. Colin Lambert takes a look at data that suggests speculators are on the decline, and hedgers on the rise – and he sees some good news for the banks in this, if they can stay one particular course.
Spot FX is “over-broked” to use the market vernacular – there are so many market makers, many of whom are recycling liquidity, that differentiating oneself in this market is extremely difficult unless you are either at the very quick end of the spectrum or are handling plenty of large tickets that require care around the execution.
Key to the announcement made today by BNY Mellon that it is launching an FX options desk is that the bank believes that this represents the next step in its transition to a “full-service” FX franchise.
“We’re transitioning from a custody FX business to a more traditional full-service FX provider,” Adam Vos, global head of FX at BNY Mellon Markets, tells Profit & Loss. “As such, FX options was a key deliverable along this journey because it means that we can now meet more of our
client’s trading and hedging demands. It’s very important that they no longer have to go somewhere else for this activity, they can trade options - as well as other products – directly with us.”
At the start of 2017, a single bitcoin was valued at less than $1,000, yet by mid-December it had almost hit $20,000. Investors were pouring into the space, Initial Coin Offerings (ICOs) were being launched left, right and centre and - given the limited supply of bitcoins that can ever exist - some market commentators were making wild predictions about how high the value of this asset would ultimately go.
But despite starting the year at around the $15,000 mark, the price of bitcoin has fallen to $6,671 at the time of writing and other major cryptocurrencies have suffered a similar decline. So what went wrong?
Thus far, despite the hype and excitement around cryptocurrencies, most CTAs haven’t exactly been in a rush to start trading these assets. However, as Galen Stops reports, this might be about to change.
As Cboe and CME both prepared to launch bitcoin futures contracts in December 2017, the price of a single bitcoin roared upwards to peak at over $19,000.
For retail investors, the attraction of this particular cryptocurrency was that the price had been going up all year, having traded at around $985 per bitcoin in January of last year. For professional traders, the attraction of bitcoin was that it was an asset that was actually moving, it was uncorrelated to other assets and therefore offered diversification benefits and, on top of all this, was almost exclusively being traded by retail punters.
If there’s one thing that has become abundantly clear over the past few years, it is that many OTC platforms have decided that they need to scale their businesses up and out in order to be successful in today’s FX market.
This was made abundantly clear in a press call today when Terry Duffy and Michael Spencer, respectively the CEOs of CME Group and NEX Group, talked about the logic behind their $5.4 billion tie-up.
“Effectively, what we’re building is a bigger supermarket,” said Spencer. “Why do people shop in supermarkets? Because it’s convenient to buy everything in one place.”
Galen Stops takes a look at how and why Aston Capital Management is planning to scale up following its recent $100m investment.
Aston Capital Management recently received an injection of $100 million in AUM and an additional $5 million in seed operating capital from private investors. Following this investment, the firm’s CEO Isaac Lieberman is, perhaps unsurprisingly, bullish about its future.
“We have a goal through our strategic mandate and product development timeline to have capacity to be managing $2 billion in AUM within two years and I can actually see us achieving this goal quickly as this business accelerates,” he says.
To help achieve this goal, Lieberman has deliberately been structuring the firm so that it can easily scale up in the future. For starters, the firm has been getting a whole slew of regulatory and accountancy registrations in place.
Galen Stops digs a little deeper into the results of the recent JP Morgan e-trading survey and finds some surprising statistics.
For those of you who missed it, there were some noteworthy nuggets of data contained within JP Morgan’s recent e-trends survey. But digging a little deeper beyond the headline figures reveals some even more interesting trends emerging in the FX market.
The first thing to point out is that the survey raises some curious questions about algo usage amongst clients. On the surface, it presents good news for algo providers – although only 8% of respondents said that they currently use algos for execution, 24% said that they plan to increase their usage of them in 2018.
The announcement by BNY Mellon this week that it is launching an FX prime brokerage (FXPB) service is interesting for a couple of reasons.
Superficially, it bucks a trend that has developed in recent years of banks scaling back, or even shutting down, their FXPB businesses. However, Profit & Loss already argued in a special report looking at prime services published in Q3 2017, that this trend was beginning to reverse itself.
So perhaps more significant is that it indicates that the barriers to entry in FXPB have been lowered as the cost of technology and infrastructure has both decreased and become more available.
Prime brokerage has had an interesting relationship with the FX market – after the initial burst of excitement when it first launched in the late 1990s, the middle years of the first decade of this century saw a growing consensus that it was a good idea that had, had its day.
Generally speaking, PB customers were restricted to dealing on a bilateral basis with the major banks, so while there was undoubtedly some benefit involved, the value proposition wasn’t one that lent itself to continued growth.
The latest issue of Profit & Loss is headlined by a special report on the prime brokerage and prime-of-prime industry. The report also looks at newer models that could disrupt the current industry landscape. As part of the report, which can be read in its entirety in the Q3 issue, Colin Lambert spoke to Gavin White, CEO of Invest Global, who believes the current environment in financial markets is presenting opportunities for firms in prime services. Moreover, White argues, we have seen this environment before...