The Foreign Exchange
Market
Traditional vs. Electronic/Automated/Web-Based/B2B
Systems
I. The Traditional
/ Classic FX Market
A. Interbank Trading.
-
Traders / Market-Makers are geographically
dispersed
-
Linked by (a) Voice brokers; (b) Direct dealing
through telephone conversations
-
Quotations distributed over proprietary systems
(e.g. Reuters)
-
Price quotations typically "for indications",
not true transaction prices
-
Automated electronic bi-lateral dealing (e.g.
Reuters 2000-1) introduced in 1980s
B. Corporate Foreign
Exchange Trading.
-
Corporate treasury telephones one (or more)
bank "corporate" FX dealers
-
Electronic price query and order entry (bilateral)
introduced in early 1990s
II. Innovations in Foreign
Exchange Trading
A. Interbank Trading
-
Automated brokerage systems
1. Reuters 2002-2 (1992 launch)
2. Electronic Broking Service (1993 launch, consortium of banks) [http://www.ebsp.com/]
1. FX Net (1987 launch) [http://www.fxnet.com/]
2. Continuous Link Settlement (CLS) Bank (2000 launch expected)
B. Corporate Foreign
Exchange Trading
1. Reuters FX Trade Management [http://about.reuters.com/fxtrade/automatedtrading.asp]
-
Web-based, multi-bank; B2B
1. CurrenEX, live in April 2000 [http://www.currenex.com/]
2. FX Alliance, yet to launch [http://www.fxall.com/]
C. Retail Foreign
Exchange
1. OANDA (subsidiary of Olsen Associates, FX by mail) [http://www.oanda.com/]
Richard Levich, International
Financial Management, B40.3388, Fall 2000