Optimizing and Automating FX Workflows

The electronification of the FX trading process has been a challenging new landscape for Heads of FX to navigate. To find out how they plan on overcoming these challenges, WBR Insights surveyed 100 Heads of FX trading across North America and the UK in Q1 2022.

Our report highlights how FX traders from the buy-side and sell-side are optimizing their currency hedging programs and leveraging the latest automation technology to source liquidity.

Download your free copy here today. 

Electronification of FX Trading

In recent years, distributed ledger technology (DLT) has grown rapidly within forex trading as well as other capital markets. Our survey revealed that 31% of respondents are looking to invest in DLT in the next five years.

FX trading leaders consider DTL to be a game-changer. DLT technology can help heads of FX to streamline their end-to-end value transfers on their desk, as well as reducing their overheads and operational risks. DLT can also add value during the settlement period, providing FX traders with real-time cross-border settlements data.

The TradeTech FX USA conference director, Irene Cerquaglia, said "It does not surprise me that DLT is generating interest amongst buy-side firms. The current environment stresses the need to keep streamlining and automating to secure critical business processes in highly volatile markets."

The development and implementation of DLT in the next five years will be a key area of interest for FX traders.

Challenges of electronic FX trading

The electronification of FX trading comes with its challenges in an increasingly fragmented and competitive environment. In the face of rapid change and the rise of new technologies, our survey reveals some of the key challenges that heads of FX trading are facing.

Changing client behaviour and needs is just one of the many challenges our respondents are facing. Rapid technological advancements will inevitably change client behavior. Therefore, understanding the ever-evolving needs of clients is vital to key client acquisition and retention.

Those ahead of the game are consolidating and personalising platforms, creating a unified client portal to overcome these challenges. In light of this, Jim Ball, the Director of FICC solutions at Refinitiv, said “The adoption of cloud-based technology is on the rise as FX trading leaders recognise the benefits of such solutions.”

Another key challenge that heads of FX are facing in 2022 is navigating a highly fragmented market and gathering, storing, and verifying data to help make better trading decisions. 57% of our respondents said their firms are currently experiencing data management challenges.

One way of overcoming data challenges is to ensure that the right data management platforms and technology have been invested in and amalgamated with existing IT infrastructure. Heads of FX will also need to train up their traders to confidently use this technology to effectively manage their data growth.

Optimizing currency hedging programs

Global diversification, increasingly volatile markets, and currency fluctuations are forcing firms to re-evaluate how they manage their financial risks.

Currencies hedging programs are a rising trend as a means to mitigate currency exposure slippage. Investors can insulate themselves from foreign currency losses by hedging, but it is dependent on the rise and fall of currencies.

The execution of currency hedging programs can be done in-house, outsourced, or included in a custodial agreement, each with its own advantages and disadvantages. 60% of FX trading leaders currently have the expertise to build and manage their currency hedging programs in-house.

The decision of whether to outsource or keep the work in-house is a major concern for heads of FX trading. As Steve Fenty, the Global Head of Currency Management at State Street, said, "There is very much a two-camp approach to currency hedging... Hedging programs are simple in theory but challenging to optimize."

Currency management is becoming increasingly complex and time-consuming, so buy-side firms may outsource this function to reduce the operational burden and risk of making costly errors. Furthermore, in the face of rising foreign exchange trading regulations, outsourcing can also facilitate compliance.

Final Thoughts

FX trading markets post-pandemic are forcing buy-side and sell-side firms to reassess and re-evaluate their strategic priorities.

To get the full picture, download our TradeTech FX USA Benchmark Report now and make sure your organization doesn’t get left behind!