As asset managers, hedge funds and proprietary trading shops have wholeheartedly jumped into the foreign exchange markets, they have also driven innovations in technology and transparency which have led to greater automation.
Whilst the report by Boston-based consultancy Aite Group does not contain too many revelations to anyone that has read the New York FX Committee semi-annual turnover reports, it does state that at the end of 2006 around 66% of the inter-dealer FX market was trading on automated platforms, with 45% of the client-to-dealer market electronic. Overall, 56% of all FX trading occurred electronically at the end of 2006.
In a report entitled “Electronic FX: Welcome to the Banks’ Neverland“, Aite predicts that 75% of all FX trading will be automated by 2010.
Sang Lee, research director and co-founder of Aite Group, says: “Technology has played a crucial role in the evolution of the FX market. Dealing banks, inter-dealer brokers, asset managers, hedge funds, and even the corporates have all successfully leveraged technology.”
Lee says the technology usage is not just for seeking competitive pricing and execution, but for post-trade processing, which lowers the risks associated with global FX trading.