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The Forex Industry in Digital Age
Abstract
To the untutored eye, the foreign exchange industry doesn't look like a business to which the Internet can add much. The Internet has the power to create global marketplaces, but by its very nature, the forex industry already crosses borders and time zones. The Internet can cut costs and increase productivity through automation, but much of the estimated $1.5trn-worth of forex trading which goes on daily already relies on highly automated procedures. The Internet disseminates information quickly and ubiquitously, but, then again, does the world really need better-informed currency speculators? Maybe not, but there's much more to forex trading than currency speculation, as Cognotec, a Dublin-based provider of automated dealing technology, will readily attest.
The forex industry is not a monolith. There is a world of difference between the elite group of 10-20 banks who act as professional market makers, and the banks whose customers-the equities investor looking to protect holdings overseas from local currency depreciation, say, or the CFO of a corporation who wants a predictable flow of repatriated income from foreign plants-do not see involvement in the forex markets as their primary activity. This difference is reflected in the typical patterns of forex activity. 90% of all forex trades account for only 10-20% of volume transacted in a day, with big-ticket trading concentrated within a few banks and a spate of smaller deals being transacted through the rest of the industry.
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