Whitepaper: Adaptive Event-Driven Trading in the Foreign Exchange Markets

Introduction

The Foreign Exchange (FX) market has become a de facto investment asset class, with a high level of liquidity and rapidly increasing trading volumes. According to a research paper by Greenwich Associates, dated May 2008, total cross border FX trading was $99,000bn in 2007, from $71,000bn in 2006. This represents 36% growth, accelerated from a 20% rate between 2006 and 2005. Today, over 60% of the volume of FX has migrated to all-electronic trading, which provides the capacity for such large volumes at diminishing transaction costs.

Technology and continuous innovation have created a large and efficient pool of liquidity, lowering the cost of trading for institutional and retail investors, and has also caused early signs of cracks in the current market structure, with foreseeable market changes required to keep pace with this unparal eled growth. This whitepaper wil look at the driving forces behind this change, the implication for major market participants, and a strategy to tackle FX trading, and in particular, liquidity management.