FX traders expect electronic trading growth to gain momentum faster than previously expected, says a global survey released by CME Group which predicts that on average, more than 80% of all cash business will be executed electronically in 2010.
CME Group says it global study shows that a growing focus on electronic trading, risk management and cost control is driving the record growth in global FX markets.
The CME operates a centrally-cleared platform for anonymous e-fx trading - FX MarketSpace - in conjunction with Reuters.
The survey of 933 market participants, which was conducted by ClientKnowledge, included 333 banks, 333 money managers and 267 'non-traditional' money managers such as including hedge funds and commodity trading advisors.
While it is well established that traditional telephone and voice-based trading continues to give way to electronic trading the study found that the vast majority of cash business will be executed electronically by 2010.
Furthermore, although latency is a "hot topic" with electronic traders, just 10% of respondents were concerned about this, compared to the 72% of bank survey participants that cited counterparty risk as their biggest concern, followed by settlement risk (64%). CME says this shows a the clear advantage of the exchange-style centrally cleared model, which lessens both of these risks.
"The concerns about counterparty and settlement risk speak to the value that an exchange model brings to the FX market and the potential to play even a greater role in the market," says Derek Sammann, MD, CME Group FX products. "The central counterparty model virtually eliminates both of these risks."
Traders of all categories also continue to focus on efficient execution. The study found that 79% of active and 81% of real-money traders were concerned primarily with bid/offer spreads as the key component of transaction costs.
Settlement costs (including exchange fees) concerned 49% of active and 48% of less active traders, while, in line with the relatively low number of algorithmic traders, reported fills relative to benchmark prices concerned a 23% of active and 15% of real-money traders.
CME Group says this confirms that increasing numbers of participants are looking for liquid venues with tight spreads and clearly identified settlement cost.
Research released by Celent last year found that the global foreign exchange market is rapidly moving towards an exchange traded business model due in part to the acceleration of e-trading.