Exchange-based FX trading is booming. The number of contracts traded on exchanges grew by 142% in 2010, according to the Futures Industry Association, making it the fastest-growing exchange product by a factor of three. This illustrates the acceptance of currencies as a legitimate asset class and the rise of high-frequency trading.
A large percentage of this growth has come from the CME Group, which first listed such contracts in 1972. Volumes have mushroomed since 2002, when the Chicago bourse began offering electronic access to algorithmic and model traders, most notably commodity trading advisers. Strong interest from Chicago traders has helped push trading to an average of $110 billion a day, according to the Bank for International Settlements, more than double the level it was before the financial crisis. So are exchanges beginning to pose a threat to the over-the-counter market, or are they a useful source of liquidity for the...
