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e-FOREX : INTERVIEW


For over ten years e-Forex has been focusing on the extraordinary impact technology continues to have on the development of FX trading. In your opinion who has benefited the most from this revolution, the buy or sell- side?


I think it is fair to say that both the buy and sell side have made gains from the growth of the FX industry yet clearly, the buy side has benefited more because before technology made it possible to trade currencies online, the FX market simply was not open to the average investor. Before the advent of the online retail broker, FX was a “closed” market open to only a select few large, multi-national banking firms.


Te fees these firms charged made it economically untenable for a small investor to deal in currencies. It is not only the retail investor, who has benefited from this development, but every buy side firm. Spreads have come down for all the participants, so this is definitely a benefit for everyone.


Te sell-side has also profited from this development. Profit margins with the big banks are way up in foreign exchange. So the trend towards electronic Forex has been positive for everyone. Tere is, however, the exception of the mid-sized banks, who in the past successfully competed in the Forex markets, but have lost their competitive edge, because they were not able to make the necessary technology investment.


Are we now trapped in a technology arms race where, ultimately, only a few large global sell-side firms will emerge with the necessary investment resources required to deliver a full spectrum of online FX services to maintain their competitive advantages?


Financial market players have always used technology to outwit competitors—indeed the same could be said for any industry. It is simply human nature to use all the tools at your disposal to succeed in achieving your goals. So we have computerized algorithmic trading today, but it is no more revolutionary than tickertape and telephones were in the late 1800s, when this earliest form of electronic trading replaced the “pad shovers” who ran prices from the trading floor to broker offices.


Tat being said, I believe there is a problem when those in the industry concentrate development efforts on creating advantages for themselves, rather than committing to an efficient market. My colleague Michael Stumm, who is CEO of OANDA, touched on this topic in an op-ed he wrote last year for the DealBook section of the New York Times, entitled “Market Gamers or Market Makers?”


To the surprise of many, during and since the financial crisis, trading volumes in FX have held up reasonably well. Over the next few years are you confident we will see significant growth within FX and if so, what factors will influence this?


My belief is that FX will continue to grow. Tere are a number of factors contributing to its growth. FX will gain greater acceptance as an alternative asset class and will grow in favour with investors—partly due to the inherent benefits of FX trading, but also because the poor performance of established asset classes will convince investors who would otherwise ignore FX to take a closer look.


For example, most of the major economies are still in recovery mode following the recession, so interest rates remain at or near all-time lows. As a result, yields in


106 | april 2011 e-FOREX


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