FX trade execution through the lens of the Triennial

The landscape of trade execution in the FX market is highly complex. Market participants can execute trades directly with dealers but also on multiple venues that are organised very differently (eg anonymous central limit order books, such as the primary venues, or disclosed platforms where participants submit and respond to "requests for quotes") and with different counterparty segments (eg just inter-dealer platforms, platforms that are open to many dealers and customers, or dealer-owned platforms to match costumer trades). Trades can also be executed by voice (which includes messaging platforms) or electronically.

A key trend over recent decades has been increased "electronification", ie deeper penetration of the market by electronic and automated trade execution. The latest Triennial data suggest that the process of "electronification" may have steadied. The relative shares of voice and electronic execution in the FX market have not changed over the past three years (Graph C1, panel A). And around 60% of trades continue to be executed electronically.

The 2022 Survey shows a marked shift towards direct forms of electronic trading, away from anonymous venues, including the primary venues (Graph C1, panel B). Specifically, there was a significant growth of direct electronic methods (+7% share), such as single-dealer platforms (SDPs) or direct price streams. This occurred mainly at the expense of indirect electronic trading on anonymous venues (–7%). Anonymous venues are trading platforms that are closest to an exchange, with counterparties not knowing who they are executing a trade with, but with the relevant information, such as prices, displayed to all the participants on the venue.

These developments imply that FX trading has gravitated further away from resembling trading on an exchange and more towards execution methods where counterparties know each other's identity, but with the trade information remaining private.

The views expressed are those of the authors and do not necessarily reflect those of the Bank for International Settlements. A Schrimpf and V Sushko, "FX trade execution: complex and highly fragmented", BIS Quarterly Review, December 2019, pp 39–51.