It’s 2023. One of the key FX plays going forward is widely expected to be non-deliverable forwards (NDFs) due to its electronification, which is opening the gates to the Asia Pacific and Latin America, the big FX frontiers today.
With that in mind, FinanceFeeds sat down with Matt Kassel and Brian Andreyko from Edgewater Markets to discuss the growth of the FX market and the firm’s offering.
Edgewater is a leading trading technology provider that specializes in FX trade execution and liquidity aggregation to help institutions trade efficiently and competitively across global markets. Matt Kassel is the Chief Operating Officer and Brian Andreyko is the Chief Product Officer.
Edgewater Markets has recently reported 90% year-over-year growth in overall trading volumes. What factors are driving such momentum?
The FX industry has been on an upward trend as volatility levels return to normal from historical lows, but we have outpaced the industry; thanks to our business model of not widening pricing during periods of increased volatility, we’re able to increase market share and become more important to our clients at the most critical moments.
We continue to grow organically, adding new technologies to our product lines, which leads to new clients and liquidity sources, dramatically reducing spreads and increasing transaction flow. This was the year that tech adoption by emerging markets took a huge leap, and we are proud to be leading the way in those regions.
Non-deliverable forwards (NDFs) trading at Edgewater exploded: up by 300% YoY. Is it confirmation that NDFs are taking over the FX market?
NDFs have always been an active part of the FX market. What has changed is that we are helping onshore clients, the true source of NDF liquidity, electronify their markets, increasing transparency and efficiency. This is more than the provision of technology – it’s providing credit intermediation between the larger global marketplace and the onshore inventory, thereby delivering and enhancing that inventory to the NDF marketplace. The ability to move exposure from local to global is going to be transformational, and we are excited to be playing a part.
Local onshore banks, which have not participated directly in the offshore market before, have found the forward exposure to be invaluable in managing their forward bond issuance risk, as well as overall local currency inflationary risk through interest rate movement and forward pricing changes.
Growing volumes produce calls for greater efficiency in execution. Is this where Edgewater Markets steps in?
We enable regional and emerging market participants to not just compete, but become the global leader for currency. It wasn’t that long ago that the BIS reported daily average turnover in the FX deliverable market to be $1 trillion – now it’s $6 trillion. This kind of explosion in transactional business is happening now in the NDF market. The increase in the trading of NDF currency pairs is, in part, related to the signifcant change in global interest rates amongst in both developed and emerging economies. The forecast for this into 2023 (and beyond) is strongly in favor of continuing significant increase in trading volumes amongst the NDF pairs both in Asia and Latin America.
Information leakage – allowing market participants to spot trades in advance and move the market against them – is also seen as a regular problem affecting NDF trading. How can this be stopped in order to boost confidence in the markets?
This is a great example of why trading directly with local rather than global providers is important. Local banks have significant onshore flows in the underlying spot currency, which is a significantly larger market than its NDF counterpart, and are able to warehouse those flows. With Edgewater, these transactions are bilateral, without the information leakage you would have on a traditional ECN.
What are the main features that can be found in Edgewater’s FX white-label platform?
We are the only platform provider that truly partners with our clients, providing both technical and execution services. Our platform gives our clients access to many differentiating features. Built in the last three years, the system utilizes modern architecture and is modular in design, complementing existing and local infrastructure. Our white-label platform also offers customization through unique widgets, integrations, algos, order routing, reporting and price generation. Finally, it has a hybrid design, combining ultra-low-latency colocation with the high availability of the cloud.
What are the next steps in bringing about the future of global FX and commodity markets?
Interconnectivity is the future of global FX and commodity markets. As local and regional participants become more efficient through electronification, the middlemen are removed and replaced with a model of direct price transmission and execution, utilizing direct disclosed and direct anonymous trading relationships globally. This enables every market participant to transact directly with source pricing, creating a truly interconnected world.
Edgewater Markets is one of the leading technology players driving widespread adoption of NDF trading. By helping FX market participants local and globally address their technology challenges, Edgewater is helping usher in a new golden age for FX.