EMFX Moves from the Phone to the Screen
The Emerging Markets Foreign Exchange (EMFX) ecosystem is moving away from its traditional reliance on voice trading, driven by APIs, aggregators, and algos. Companies like R5FX are leading this change by supplying online exchange marketplaces for EM trading.
The move from phone to digital means more and faster access to emerging markets, greater transparency, and ultimately more market liquidity.
Banks and non-banks alike are now upgrading their algos to include NDFs, supporting TWAP, VWAP, and strike algos in BRL, KRW and INR. Different currencies have different processes, so RFQ is still being used for PHP, IDR, MYR, TWD, CLP and COP.
The FX Global Code and regulators are driving these upgrades as greater demands on transparency will require more automation. Other drivers of digitisation in emerging markets are increased focus on best execution and the growing use of Transaction Cost Analysis (TCA).
In the past, when voice trading dominated EMFX, it was impossible to use aggregators or algos. Now that we are seeing activity migrate to API channels, algo developers are entering the market.
FX algos are already used by more than a third of the biggest institutional fund managers active in FX markets, and by almost a quarter of the biggest corporate FX traders. Although mostly used in G10, its expected that the use of algos in EMFX will increase significantly in the next two years, as trading institutions look to capture the potentially bigger returns offered by EM.