FX market trends: Liquidity, execution, and the FX Global Code

November 15, 2023

In the ever-evolving world of foreign exchange (FX) trading, market participants are no strangers to change. Over the last few years, increased market volatility has become a defining feature of the FX landscape, significantly altering how traders access liquidity. The FX market, known for its lightning-fast pace, has witnessed a series of developments this year that demand traders to navigate unprecedented turbulence while seeking reliable access to liquidity.

In response to this dynamic environment, participants are making strategic shifts. Rather than relying solely on a single provider, traders are embracing diversity in their market access. This shift towards diverse LP and secondary ECN market access has been accelerated by the challenges created through the integration of key primary platforms, such as EBS Market’s Central Limit Order Book (CLOB) and eFix Matching Service onto CME Globex. The result? A surge in trading activity and a new way of approaching local liquidity in the FX market.

But how exactly are these changes shaping the relationships between liquidity providers (LPs) and liquidity consumers? How are they using data to enhance their liquidity provision and execution? And what role does the FX Global Code play in this evolving landscape?

Let’s dive into the shifting tides of the FX market and explore the answers to these questions.

Accessing liquidity during increased market volatility

Amidst the rapid pace of the FX market’s developments this year, participants have found themselves navigating unprecedented volatility while seeking access to liquidity.

Diverse market access

Instead of relying solely on a single provider, traders have shifted towards areas of the market that enable swift access to more liquidity, regardless of the broader market environment. The importance of having relationships with top-tier banks, regional banks that specialize in their markets, and secondary ECNs is higher than ever as shown by trading volumes over the last year.

Role of tier-1 banks

Tier-1 banks, particularly those in G10 countries, play a pivotal role in this landscape by internalizing flows and ensuring consistency. Their presence is instrumental in maintaining liquidity in the FX market.

ECNs and flexible trading

There is a continuing growing trend towards trading on Electronic Communication Networks (ECNs), which empower participants to curate their own liquidity pools and facilitate trading even outside of regular trading hours, offering an efficient means to reduce latency and enhance execution quality. As a result, we still see the number of ECNs continuing to grow, with minimal consolidation in the number of liquidity pools available to the market.

Shift towards derivative products

Notably, market interest has gravitated towards derivative products like Non-Deliverable Forwards (NDFs), swaps, and options. In 2022, these derivatives collectively accounted for a substantial 51% of global turnover, reflecting a shift away from traditional spot trades. This shift highlights the market’s evolving preferences.

ECN impact on NDF trading

According to Devang Bhatia, the CCO for CurrencyNode, a Singapore Stock Exchange-launched ECN, the growing volumes of these products are blurring the lines between electronic pricing on ECNs and listed markets. This phenomenon is giving a significant boost to NDF trading on ECNs, further underlining the evolving dynamics and adaptability of the FX market during times of heightened volatility.

Using data to improve liquidity provision and achieving the best execution

As the financial market becomes increasingly crowded and competitive, the importance of data has grown substantially. Both LPs and consumers have shifted away from traditional transaction cost analysis (TCA) towards platforms that can efficiently analyze data, ultimately enhancing the execution process.

One increasingly favored route is through platforms that offer Liquidity Provision Analysis (LPA). These platforms empower the buy-side to monitor their liquidity data throughout the day, providing firms with reliable and up-to-date information, and enabling more informed decision-making.

Broadening analytical horizons

Market participants are also looking for vendors enabling LPs to assess data in parallel with their consumers, offering deeper insights than traditional TCAs. Companies such as Tradefeedr, for instance, allow LPs and customers to view data simultaneously, fostering more productive discussions about spreads. The CEO of Tradefeedr, Balraj Bassi, anticipates the development of more advanced functionality throughout 2023 as firms increasingly demand a single, consistent, and independent view of trading data. Central to this effort is data quality, which must be reliable and clean.

APIs for data quality and integration

The flexibility and connectivity provided by APIs are instrumental in maintaining data quality. These APIs facilitate the use of standardized, unconflicted data and enable the seamless integration of data into various analysis tools. Therefore, participants can quickly pinpoint liquidity, leading to a smoother execution process. Many market players have already recognized the potential of these interfaces. Some institutions, such as DBS, and fintech companies like FISPAN, advocate for the comprehensive adoption of APIs to further enhance data-driven strategies.

The growing role of APIs

According to McKinsey, the role of APIs in the banking sector is rapidly expanding. In 2020, 75% of banking APIs were primarily used for internal purposes, while nearly 20% were used externally. There are ambitious plans to double both figures by 2025, reflecting the growing significance of APIs in reshaping how financial institutions handle data, liquidity, and access to the markets.

Increasing efficiency and access to liquidity

Customized approaches for varied needs

Recognizing that there is no universal approach that fits all, consumers require specific and tailored strategies based on several factors:

  • Their role in the market, whether as an LP, dealer, or fund.
  • The nature of their client base.
  • Their engagement with LPs or ECNs.
  • Whether they operate on the buy-side or sell-side of the market.
  • The specific financial products they focus on.

While some market participants rely on algorithmic trading, those involved in more exotic financial products often require different approaches. For example, for products like swaps, the prevailing model still appears to be largely client-to-dealer, with clients actively seeking multiple Request for Quotes (RFQs) to gauge market conditions.

Emerging venues for transparency

As interest in these diverse financial products has grown, new venues that provide price transparency and market certainty have emerged. However, to achieve true scalability, further investment is required from LPs in trading algorithms. For instance, while platforms like FX Link have introduced electronic CLOBs for FX swap risk, many tier-one banks continue to participate in a manual capacity.

This manual involvement has, in some cases, led to inefficiencies, and we can expect market participants with a focus on efficiency in this domain to increasingly turn to electronic trading solutions. These solutions hold the potential to automate processes and expedite access to liquidity, aligning with the evolving needs of the market.

Compliance with FX Global Code

The FX Global Code represents a set of global principles of good practice in the FX market. In anticipation of the deadline for recommitment, many banks have reviewed their systems to align with the Code’s provisions.

Code-only liquidity requests

Several liquidity consumers are now requesting “Code-only” liquidity from their chosen trading platforms, including Cboe FX, 360T, NYSE Euronext FX, emerging markets ECN DIVALink, and smaller institutions such as Equiti Capital.

Central bank adherence and code updates

Central bank systems have also compelled their members to adhere to the Code, including the ESCB and the Monetary Authority of Singapore. The 2021 update introduced significant changes, particularly in LP disclosures and the recommendation for LPs to operate with a zero additional hold time. This change has been seen as a call for executing trades “as quickly as possible.”

Transparency and data access

The Code’s alterations to disclosures emphasize the need for LPs to provide more information about how orders are handled. This results in a more transparent relationship between providers and consumers. This transparency enables traders to better predict trends and identify potential risks, thereby improving the chances of achieving the best execution.

Buy-side adoption and industry views

Buy-side firms account for only 12% of Code signatories, with differing perspectives on the benefits. While some like Eric Huttman, CEO of MillTechFX, believe it will make the FX market fairer and more transparent, others like Eric Donovan, Global Head of Institutional FX at StoneX, question the cost-benefit of Code compliance for the buy-side.

Challenges and asymmetry

Challenges include the significant asymmetry in response times from Code signatories, potentially disadvantaging those with shorter hold times. This has led to calls for non-compliant participants to be removed from liquidity pools and for pressure on compliers to achieve more symmetry.

Code as a positive industry development

Overall, the FX Global Code is viewed as a positive development in the industry, enhancing transparency and trust. It has encouraged market makers to reduce hold times, making liquidity more accessible.

Some experts call for further improvements in areas like algo disclosures and standardized templates. These developments, however, depend on democratizing data access.

Code and its future

  • Ankur Pruthi, Head of FX at NBIM, calls for more awareness around algo disclosures and templates, to bring the market to a point where all counterparties have standardized disclosure. This transparency can “only happen” when data access is democratic.
  • In December 2022, GFXC members agreed to commission a Digital Proportionality Tool for facilitating FX Global Code adherence.
  • The GFXC is considering partnering with ESG rating agencies to enable Code signatories to demonstrate that they have fulfilled the ‘G’ element of their ESG commitments.
  • A tool that would allow buy-side firms to identify the code’s principles that apply to them and lower barriers to entry, is being prototyped.

ION FX solutions: cutting through complexity

As we know, cutting through the complexity of FX trading and operations is paramount in a volatile market. Manual processes, and disparate systems and spreadsheets no longer suffice. If you’re not adapting to changing market and regulatory demands, you can’t offer your clients the innovative products and services they desire. This lack of adaptability hampers business growth.

No matter the size of your business, ION FX Solutions provide a scalable platform that automates and simplifies your FX trading, risk management, and operations. By unifying these elements into a single, easily scalable platform, ION empowers you to meet the challenges of a volatile market with confidence.


The FX market’s response to increased volatility has been nothing short of transformational. Market participants have diversified their strategies, embraced new ways of accessing liquidity, and turned to data-driven solutions to enhance both provision and execution. The FX Global Code, with its principles of good practice, has added an extra layer of transparency and trust to this ever-evolving landscape.

As the FX market continues to adapt and thrive amidst change, it’s clear that staying informed and applying technology for more efficient, data-driven trading strategies is essential. In a market characterized by volatility, innovation, and the ever-present need for liquidity, those who adapt most effectively are poised to succeed in this dynamic and fast-paced financial arena.

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