Special FX

Let's put that in perspective, because if you're anything like me, $5.3 trillion is just that─a figure. The sums are too vast for comprehension at a glance. $5.3 trillion is more than double the current national debt of the United Kingdom. Actually, it's more than double the nominal gross domestic product of the United Kingdom, too. You could buy 900,000 Lamborghini Venenos, the most expensive sports car of 2013-14, with that money. It would be enough to buy the Woolworth Mansion in New York 58,800 times over, and still have enough change to buy an airline. This is the figure that turns over every day.

Alright, maybe that humanizing exercise isn't quite working, but FX is by far and away the most liquid and the largest asset class around. A recent report by the Bank for International Settlements (BIS) had a number of headline-grabbing findings in it, but what it really showed was how electronic the process is becoming. Over 50 percent of global FX transactions are now conducted electronically, with the remainder made up from voice and voice execution. So, punter A calls up broker B, asks him how much for X of X, they agree a price, and it's executed.

Efficiency
Given how much focus is on high-frequency platforms (I wrote a story today about a risk engine that can handle 10,000 orders per second, as an example), direct market access, algorithmic glitches and everything else, it all seems horribly archaic. But, it is the norm in many places, where brokers still have a stranglehold on the local market and the infrastructure isn't developed enough to allow for London-style e-FX. If you don't know what I mean by that, then sit through a Velocity presentation at Citi, and you'll get the picture.

All of this adds up to the split personality in FX trading, or at least, the strange way in which it's perceived by the wider world. Exchange rates are of course dependent on a number of factors, but the numbers are calculated by the markets and the buy/sell price, and it underpins so much of society, yet it's unregulated. It trades around the clock, without pesky market closes, and certain FX derivatives are now exempt from over-the-counter (OTC) reform. It's incredibly efficient as far as asset classes go, and thanks to efforts by groups such as CLS, settlement risk in the interbank space is more or less eliminated─thank you, Herstatt Bank. Yet nobody remarks on this.

Some of the boldest technological steps forward are being made in FX, as well, particularly in the single-dealer platform segment and what the FX industry is doing with languages such as HTML5. It also has some of the most anachronistic practicies in places, particularly in its public-facing aspects, where most people associate foreign exchange with being ripped off by a bloke in a glass cabinet at Marks and Spencer's.

It's incredibly efficient as far as asset classes go, and thanks to efforts by groups such as CLS, settlement risk in the interbank space is more or less eliminated.

Still, credit where credit's due, FX is roaring ahead in most sectors.