Banks increase FX market share

2020 saw a return to a majority share of the FX market for the top banks in the world. This came after newer companies had eaten into that market share during the previous year. The factors behind this could have long-lasting impacts on the FX market share going forwards.

With the global FX market hitting $6.6 trillion per day in trading volume during 2020, it’s a significant market for banks and other financial institutions. As technology has improved over the years, trading methods have become open to many more people. This has been a prominent driving force behind the institutions that have occupied the top three traders by volume in the Euromoney FX survey over the last two years.

During 2019 XTX Markets managed to climb into the top three. XTX was a new entrant, and it took a position that has traditionally been held by a bank or other large institutions that operate across large trading floors. Using a more technology-based approach allowed XTX Markets to sneak ahead of some of the larger names on the market.

The main reason for this was the impact of Covid-19 across the world. Because a large proportion of the population were in some form of lockdown, it meant that traditional trading wasn’t as viable. As such, traders with a superior technological platform saw a sharp increase in their own FX trading volume.

There were none quite so stark as XTX Markets, shown by its rise to the third position. However, this was reversed for the 2020 table due several reasons. JP Morgan, UBS and Deutsche Bank took the top three spots for 2020, meaning XTX dropped out. It wasn’t just the easing of restrictions that caused this to take place, though.

What all three of those banks have in common is that they have strong electronic infrastructures in place. This means that as the implications of the pandemic became more apparent, all three of these institutions were able to offer a service good enough to attract and retain traders.

This combination of eased restrictions and more traditional trading taking place again meant that banks could retain their traditional positions as the top FX traders by volume. The top three positions combined carried out 30% of the total trading within the FX market. It means that these three banks alone carried out $1.98 trillion in FX trades per day. With electronic and algorithmic trading expected to continue to increase, it could lead to an even tighter grasp of the top positions over the coming years.

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