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The Bank of International Settlements (BIS) released its most recent triennial assessment of FX trading volumes and trends in December 2019, showing that EM currency FX markets increased faster than major currency FX markets. In reality, EM currency trading increased by 60% between 2016 and 2019, more than twice the world average (33%), and by the end of 2019 accounted for about 25% of global turnover.

A greater proportion of trades were also created by hedge funds and proprietary trading businesses between 2016 and 2019. Since FX trading has become more electronic and digitalized, the number of non-bank financial institutions has increased dramatically. Smaller companies were allowed to enter markets formerly dominated by inter-dealer trade between banks. 

The inclusion of NDFs and offshore trading on the key electronic broking platforms such as EBS and Reuters/Refinitiv, which debuted NDF trading platforms in 2020, led to a considerable increase in forwards, notably NDFs, and offshore trading.

There are both problems and possibilities to the fast rise of EM currency trading and its digitalization, according to BIS. Better liquidity and the ability to trade 24 hours a day means more opportunities for foreign investment in developing countries, especially. 

Electronic Benefits

This may have an impact on exchange rate discovery in markets that are more difficult to monitor as a result of increased offshore activity. Traders of these more unusual currencies face comparable dangers when dealing in foreign exchange.

There is a trade-off between increased profit margins and higher operational hazards. Many FX trading platforms and service providers, as shown here, have been working hard to provide additional promotions, products and services tailored toward emerging markets (EMs) to decrease operational risks. 

According to John Stead, worldwide head of pre-sales at Smart-Trade Technologies, "the EM globe is separated from other currencies by frequently less liquidity, more complicated procedures, and extra trading regulations." To make use of the current sophisticated trading features presently employed with non-EM products, several procedures and currencies may be entirely digitalized. However, several currencies and liquidity providers at the extreme extremities of the EMs do not have any electronic rates offered through APIs."

Instead, a daily pricing card is sent or faxed to the customer each day. Non-eFx sources may be used to reduce the amount of human work involved in the process, adds Stead. Banks may utilize these rates in the current eFX flows after they have been collected." An API would allow interbank trade but the sell-side only wants to present customers with a set rate at the end of the day. It's possible to automate this step, which is the transition from variable rates to a distributed rate card, to minimize human intervention."

For Smart-Trade Technologies' Ludovic Blanquet, chief product and strategic planning officer, the usage of APIs has become critical in permitting optimum integration of processes and decreasing human involvement. RestAPIs, or semantic and self-describing APIs, provide for more seamless integration of human and machine input and output." To keep up with the decreasing scale of the banks' activities, they must increase productivity. Both may be accomplished with intelligent automation, which preserves their profit margins. An audit trail and important milestones are created when a process is automated, resulting in a reduction in operational risk."

Advantages of Digitalization

The foreign exchange market has become more competitive as a result of technological advancements that have made it easier for more individuals to participate. The currency rate is affected by increased competition.

Additionally, the rise of bitcoin and generally cryptocurrency platforms is due to technological innovation. A person's physical location isn't an issue with these digital platforms. 

Trading foreign currencies are now easier to do because of the advancement in technology. Some software now caters to speculative purchasers, while others can estimate the danger of a deal.

The processing speed of computers is superior to that of humans. Foreign exchange data updates are handled by computers that analyze large amounts of data and provide changes on the fly. In the past, updating pricing charts and distributing new information would take a long time. 

In the old days, brokers and those who worked in the stock exchange were the only ones who had access to live market prices. Live market prices are now available to anyone with Internet access, thanks to advancements in modern technology. Exchange markets may be accessed via certain internet trading platforms.

When an order is submitted, not when it is placed, it is executed in the foreign currency market. It marks the end of a transaction. Execution submissions were traditionally delivered to brokers, who made decisions about what should be done with them. However, the execution of orders is now real-time and more efficient thanks to contemporary technologies. Fees have dropped significantly because of this.

Foreign exchange has been influenced by social media. Traders are now able to interact more quickly thanks to social media. Traders now have a place to connect through social media. Traders and brokers may communicate and discuss their experiences on certain social networks, such as Facebook and Twitter.