In the spring of 2012, Colin Lambert, editor of Profit & Loss, and I held a one-on-one on stage debate. I believed the currency market would continue to fragment and that there would be even more venues on which to trade currencies in the future; Colin believed the market would consolidate. Colin’s case was somewhat dented by an announcement on that very day that a new trading venue would launch, namely FX Pure, now known as ParFX. Nonetheless, we had an extremely lively debate.
Time has marched on; fragmentation has continued apace. Since that debate, we have seen the growth of so-called “dark pools”, several more new ECNs, increasing diversification of bank market makers and, of course, non-bank liquidity providers. For the purposes of this discussion, I will refer to all such currency providers, marketplaces and brokers as ‘venues’. Back in 2012, MarketFactory connected to less than 20 venues. Today that number is over 75.
The second law of thermodynamics states that, broadly speaking, entropy is always increasing. It would seem that our market is no exception. It is increasingly necessary to connect to a large range of venues.
So what is driving fragmentation? Click here to access the full whitepaper.
Additional Information linked in the whitepaper and below:
- Blog Post by James Sinclair: Short Memories, Long Horizons
- Profit & Loss 2012 one-on-one stage debate – James Sinclair and Colin Lambert
- Blog post by James Sinclair: Darkness Expressing Darker Purpose
- XTX tool to evaluate market impact and decay
- 2017 paper by Maximilian Butz and Roel Oomen “Internalisation by Electronic FX Spot Dealers”
- 2016 paper by Roel Oomen “Execution in an Aggregator”
- Sterling flash event of October 7, 2016
- Global Code of Conduct