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Foreign Exchange

FX gets invitation to join the dark side

Electronic block trading is poised to become an option for the foreign exchange market. But will it have the same impact as it has had in equity markets?

Anything that has had an impact on one asset class or market will rapidly cross over to others if it has perceived benefits. Perhaps the most obvious example is electronic trading itself, which has changed the way trading is done in market after market; other innovations to cross over into foreign exchange more recently include programme and algorithmic trading. The last two have had a profound impact on the US equity market in particular and are often cited as the main reason why the average ticket size declined substantially.

With computerized trading on the increase in FX, it is noticeable that ticket sizes are also falling. As a result, it was perhaps inevitable that a solution to the problem of trading large amounts, or blocks, would arrive from another market, and again it is the US equity market that might offer an answer.

The average trade size in US equities is now believed to be about 300 to 400 shares, or, in value terms, just $20,000. This poses problems to investors, such as asset managers, that want to or need to trade in larger amounts. The development of electronic block trading functionality by such companies as FlexTrade, Lava and Pipeline Trading Systems, among many others, has provided a solution.

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