Market making in emerging market currencies is a key way for liquidity providers to differentiate themselves in an increasingly competitive G3 landscape, says Kevin Kimmel, global head of e-FX at Citadel Securities.
“Where there’s a lot of demand and where there’s also an opportunity to differentiate yourself as a liquidity providers is in the less liquidity currencies, in the Scandies, in Ems, where you don’t necessarily have as many people with really tight top of book liquidity,” he comments
In contrast, G3 spot FX market making has become so commoditised and the pricing is so tight already that Kimmel says that he is unsure whether a new market maker pricing just these currencies would really add significant value to the overall FX ecosystem.
Despite this, he stresses that as a market maker it’s still important to be competitive in G3 because most clients still trade a lot in these currencies. In addition, Kimmel says that there are many firms that want to trade G3 currencies with market makers that warehouse risk so that their market impact is muted when trading, and therefore offering this risk warehousing this is one way for market makers to provide value to clients in this segment of the market.
“That being said EMs is one of the spaces where we see more of a dearth of liquidity and where liquidity providers can also differentiate themselves,” Kimmel adds.
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