FX price discovery debated as bilateral trades rise
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Foreign Exchange

FX price discovery debated as bilateral trades rise

FX dealer trading with financial customers may have stagnated over the last few years, but the effects have not been felt evenly across all markets and the impact on price discovery is far from clear.

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Last year’s Bank for International Settlements (BIS) triennial FX market survey, which was published in December, cited increased inter-dealer trading as a major factor in the growth in trading volumes, and also noted that more trades were being executed via bilateral methods than through multilateral platforms that make prices available to all participants.

Dealer trading with customers has stagnated in dollar terms since 2019, with the market share of dealer-customer turnover falling from 62% to 54%. Inter-dealer trading has not accounted for such a high percentage of trades since the mid-2000s, with 54% of all swap trades now executed this way.

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Geoff Kot, Standard Chartered
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According to Vladyslav Sushko, senior economist at the BIS, this shift towards bilateral forms of trading implies a continued reduction of ‘visible’ trading, suggesting that the transparency of the FX market may have decreased further. While accepting that this trend has so far not hampered market functioning, Sushko says it could harm price discovery for the market as a whole.


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