Beyond Liquidity: The Good, the Bad & The Must-Know

Some of the most pointed questions of the summit were being asked during the final session of London Summit 2019

FX Liquidity is a landscape that never stops changing, providing endless opportunities and pitfalls for market participants. One of the most informative panels of the summit was saved for the last, with some of the biggest names.

The panel discussed both ‘the good and the bad’ news and touched on significant progress areas as well as pressing issues in the FX markets and the outlook for liquidity consumers.

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Furthermore, panelists grappled several ‘must-know’ topics, which are crucial in what the future will bring. This included the following individuals:

  • (Moderator) Hormoz Faryar, Global Head of Institutional Business at Equiti Group
  • Ian Daniels, Head of eFX Distribution EMEA & Americas at Nomura
  • Alexei Jiltsov, Co-Founder at Tradefeedr
  • Jeremy Smart, Global Head of Distribution at XTX Markets
  • Andrew Biggs, Head of Liquidity at CFH (TradeTech Group)
  • Conor Daly, EMEA Head of eFX Sales at Goldman Sachs

Is it difficult to make money in this market?

Right out of the gates, the questions came aplenty, with Conor Daly EMEA Head of eFX Sales at Goldman Sachs speaking on the profitability of operations at the company.

Perhaps unsurprisingly, the business is much lower margins than what many had anticipated. Indeed, with such high costs, the margins justify profits only in exceedingly large volumes.

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Many panelists declined to provide key statistics given the lack of availability of public data. According to Ian Daniels, Head of eFX Distribution EMEA & Americas at Nomura, “Liquidity requires constant investment.”

Overall, transaction costs and myriad other factors do erode profit margins, though many of the largest venues have still managed to succeed in this space regardless.

On Aggressive flow

“You cannot make any money on aggressive flow and it differs from one person to another,” noted Alexei Jiltsov, Co-Founder at Tradefeedr. This varies by skillset and tradability amongst venues.

Of note, what happens before, after, or around the trade is what defines aggressive flow. In actuality, many profit margins were as low as $10-15 per million. The more aggressive flows, the worst prices this will attract most of the time.

Ultimately, more feeds with different prices have helped in a number of areas. Even a single LP can dictate a wide range of influence, for example.

One of the most interesting revelations was that there were only ten actual liquidity providers out there, a number the panel did not quite agree on.

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