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Trends in the Currency Markets: Why Early Detection of Events Matters

Rohanna Wise

No one can predict with certainty what will happen in the currency markets but there are some clear indications that foreign exchange markets will continue to evolve through regulatory changes, shifts in liquidity providers, and technology innovations. While we mentioned about the political uncertainties in our previous blogs that jolted the foreign exchange markets around the world, uncertainty around a stronger U.S. dollar and higher interest rates could drive more volatility in near future. Ivy Schmerken, in her blog talks about the trends in the currency markets.

  1. Ivy states that regulations such as Basel II and Dodd Frank’s Volcker Rule have made it difficult for banks to warehouse risk and have reduced capacity of the banks to compete. And because of the macro events like when the Swiss National Bank unpegged Swiss Franc, sending shockwaves through the prime brokerage community, Prime brokers raised fees on the hedge funds and dropped clients, which in turn may have contributed to the downsizing of the global FX volumes – Between 2013 and 2016, FX spot trading activity reduced from $580 billion to $390 billion according to Bank for International Statements.
  2. Speed-based trading strategies may become less important to currency markets. Certain algorithmic strategies primarily based on speed have reached a saturation point and as these trends evolve we could see a shift from aggressive latency-driven strategies to more passive strategies based on electronic market making.
  3. Blockchain is believed to have a big impact on delivering real time clearance and settlement in currencies. This could help to speed up transactions, assess risks quicker, and cut costs as well as replace legacy infrastructure.
  4. Finally, the technologies such as big data analytics, algorithms, and machine learning can potentially be integrate to make trading decisions. For now, the buy-side firms are looking for technologies that will help reduce workflow of asset managers on routine areas. And hence, enabling them to focus on more complex trades.

Enabling asset managers to focus on the important trade is the philosophy that we live by at Wise Trading Technologies and you can witness the same through our products. And our first product, WiseRisk is a low cost, turnkey solution that plugs into your existing investment application ecosystem to automate and optimize currency risk management. Our advanced system integration platform means implementation takes days, not months. Features include real-time reporting of currency exposure, automated fund/hedge and close/roll, scheduled rebalancing, monitoring of market conditions for early detection of extreme events, and optimized netting to internalize as much of your FX flow as possible.