It has been a chaotic ride in the financial markets in the past few weeks, with everything from equities and indices through bond markets and commodities all being adversely affected by erratic movement. Investors are slowly accepting the possibility of a lesser stimulus from central banks across the global market.
Foreign exchange markets, specifically have seen insuperable moves in the past months. The Japanese yen is perhaps the most striking example of them all. The Japanese Prime Minister in his proposed Abenomics framework, will supposedly give the yen a one way ticket throughout most of the remaining months in 2013. This however was short lived and lasted only in the middle of May but since then the dollar-yen has seen a remarkable and regular intraday swings ranging from 3 % or more.
There is a contending issue regarding the future evolution of the FX market, which face just as many obstacles in terms of regulation as with other similar financial markets. Regulators are becoming more aware of the expected rise in FX volumes over the forecasted years. As the global economy continues to expand, the power of emerging markets also increases, the part of which FX plays in that particular growth are very well considered.
Not only and investors try to profit from movements in currency prices, but global corporations hedge their exposure to the various currencies that they derive their income from.
With electronic trading and express proliferation of new trading venues, gone are the days of the old school close relationship which was built up over the traditional telephone broking business are now considered to be relics of the past in the business of trade. A little boom in the city at the moment is the quant hedge fund industry. Both recruiters who are experts in this field and the brokers that provide their primary services are gaining momentum. Moreover, ex-bankers are starting to build their mini-funds and are putting them to good use in terms of proprietary trading skills that were done in the past.
A lot of these strategies significantly involve trading the FX markets to some degree. Even the more traditional buy-side institutions are slowly but surely coming into terms with the potential FX markets can provide them.
It can greatly assist in the formulation and promulgation of investment strategies, as currencies which are slowly emerging as an asset class in their own right.
The technology used in many of these platforms significantly makes execution lighting fast. As such, unconventional strategies such as high frequency trading can be used to a much greater effect. As the demands of investors increase, FX trading will need to continue and evolve by becoming more like its exchange-traded equity, bond and commodity counterparts. It is very likely that we will still see providers shunning away from the market maker model and as a result will turn aligning interests with clients.