A storm is brewing in the world of FX derivatives. Driven by, surprise surprise, Brexit uncertainty and Trump – there’s a sizable chunk of activity in GBP/USD options relative to the other major currency pairs.
Now the geopolitical landscape is of course backed into the price of the underlying currency pair, as opposed to the activity of the options. But the challenge is that as volumes increase, investment banks have to inevitably pay more in interdealer broker (IDB) fees. And the bigger the volume, the bigger the brokerage cost. Already under intense scrutiny to reduce costs wherever possible, this is a major headache that any desk head could do without right now.