Exchanges overtake FX trading platforms

One visible sign of the change in the structure of G20 countries' FX market is the takeover of a major electronic FX trading platform by an exchange, as it emerged over the weekend. This takeover is causing the imagination to take flight. 

Is it possible that in the future foreign currency will no longer be traded OTC but on regulated exchanges similar to equities?

There are two major differences between the two financial instruments: 

• Due to the large number of equities traded, the liquidity of each of them is low, and bid ask spreads are higher - also compared with volatility. The bundling of liquidity in central locations therefore makes sense - much more so than with G10 currencies.
  
  
• Anyone trading equities does this almost exclusively to make a profit in this market. Many participants in the G20 FX market do so for other reasons. They trade foreign currency so as to be able to sell or buy goods, services or securities denominated in other currencies rather than with the aim of making speculative profits on the FX market. As a result the structure of the participants is more heterogeneous. A one-fits-all solution is much more difficult to obtain. 

What is decisive for the FX market is whether it constantly has sufficient liquidity. This has become a problem since banks have been prevented from holding significant speculative positions. They no longer offer a more or less stable supply of liquidity. 

Other participants vary much more notably in their willingness to offer liquidity. The result is not pretty, those trading foreign currency for exogenous reasons have to accept that their transactions have a stronger price impact.

"If this problem could be solved by moving the trade to exchanges that would be welcome, but it is far from certain that this would be the case", says Commerzbank.