Electronic trading venues top Spot FX execution methods

The outlook for spot FX execution methods is both fluid and evenly split. The first BIS reading of execution method market share came in April 2010. Using execution venue data from the U.S. FXC and FX JSC semi-annual surveys, Aite Group constructed an estimate of how the market share of various execution methods has changed since April 2010. Aite Group estimates that between April 2010 and October 2012, the industry witnessed the following market share changes:

• Electronic trading venues: Aite Group estimates that SDPs and MDPs have seen a (substantial) 4.0% market share gain since the April 2010 BIS survey. An estimated US$520 billion (32% of the spot FX market) was executed daily through electronic trading venues in 2012, making this the largest type of spot FX execution venue.
• Customer direct execution: Trading between a reporting dealer and a client or non-reporting dealer via direct telephone conversation or RCD has likely fallen from 21.3% to 17.9%. This change denotes a slight shift toward electronic trading venues.
• Electronic broking: Trading executed via electronic broking venues increased slightly in notional terms, from US$389 billion in April 2010 to US$402 billion in October 2012, but it saw some market share tussle with electronic trading venues in 2012.
• Voice brokers: The ongoing trend away from voice broking in the spot FX market likely continued between 2010 and 2012, with the share of this execution venue falling from 8.5% in April 2010 to 6.4% in October 2012.
• Inter-dealer direct: Direct activity between two reporting FX dealers saw a noticeable increase between April 2010 and October 2012, from 14.8% to 18.4%. Higher bank capitalization in the United States and Europe appears to be boosting trading activity among financial institutions.