In 1962, there was a Bo Diddley song called “You Can’t Judge A Book By The Cover”; but if you can’t judge a book by its cover, it begs the question of how can you best judge it?

In the context of FX trading (for forwards, swaps, and options), this metaphor becomes a conversation around the cost to trade and how a trader can evaluate the Transaction Cost Analysis (TCA) of using one liquidity provider or trading platform over another.

Much liquidity analysis in client-facing marketing provided by platforms and liquidity providers can be centered on the liquidity available at top of book during peak hours of the trading day, or the discounted “ticket’” fee to trade on a given platform.

To “cherry pick” certain hours and say that you could trade at a given bid-ask spread and fee without providing further context on other factors – the total depth available, likely total cost to trade for a full amount, whether the given prices were firm or whether there was last look, and replenishment rates within the order book, for example – is tantamount to judging the book by its cover. You’re taking only a small amount of information and then trying to extrapolate from that to make a wholesome conclusion.

To make a fuller determination on cost to trade and where the most efficient place might be to execute a given trade, we feel that there is a wider range of considerations than just the immediately observable spread at top of book, but that is not to say that top of book spreads aren’t a critical ingredient in that overall approach.

The FX Market Profile tool helps CME Group customers to analyze and understand the top of book spreads, both average and historic during customer defined time periods, along with top of book depth. It also provides the same color for multiple levels of the trading book to help customers understand the total available liquidity in the order book.

The tool also allows customers to see actual traded volumes, in both contract and notional term. Seeing this data down to a five-minute time interval offers an understanding of both how the order book reacts to trading volume (do prices widen or do they maintain/tighten) and also how quickly the order book replenishes (it’s all well and good an order book showing a super tight price for a small amount, but seeing how quickly and how effectively customers are able to transact size at the average top of book spread may be more telling).

Average top of book spread and average traded volumes in five-minute time slices for CME Group EUR/USD futures in the period December 1 to December 16, 2022, for the window 8:00 a.m. to 8:00 p.m. GMT

The discussion gets broader as customers seek to understand not just originating (establishing) a position, but the likely costs to be expected if/when they then wish to roll that transaction forward or to close it out. Focusing purely on a top of book spread for small size to establish a position feels analogous to only considering the price of the hors d’oeuvres without considering the menu for the rest of the meal.

Our view is that TCA should include average spreads for establishing the position along with inputs on the cost to roll/exit for that position as needed. The order book data then also should be reinforced by wider data such as transacted volumes, numbers of customers in the ecosystem, open interest (where available), and the percentages of passive execution.

An academically tight top of book spread for establishing and rolling a trade is somewhat hollow without there being clear evidence of meaningful volumes by meaningful numbers of customers transacted at those spreads.

For example, during the December roll period at CME we saw the average top of book spread for EUR/USD rolls at 0.23 pip, but arguably of equal importance we saw ~85% of open interest in EUR/USD (which totalled ~$100bn) rolled forward, we saw asset manager firms trade passively ~43% of the time, and saw a hugely diverse ecosystem of >25,000 participants active in CME FX futures during the roll period (with asset managers being the largest client type by open interest – holding 39.7% of open interest as at Dec 20th 2022).

December 2022 to March 2023 roll


ADV 2022

Open Interest as at Dec 15

% Rolled from Dec to March

Average TOB spread


 $33.2 billion

 $117.4 billion


 0.23 pip


 $15 billion

 $21.6 billion


 0.22 pip


 $9.6 billion

 $17.5 billion


 0.54 pip


 $7.1 billion

 $11.3 billion


 0.26 pip


 $7 billion

 $13.3 billion


 0.24 pip

Spreads are during regular trading hours during the two week roll period

While the cost to trade analysis tools at CME Group seek to embrace the points made above by showing spreads and order book depth across multiple levels along with actual traded volumes, open interest, and details on numbers of customers holding large open positions, the data is still incomplete.

During 2022, we saw a massive upswing in customers trading on a disclosed relationship basis with chosen counterparts who could then lean on OTC liquidity. These privately negotiated trade types (referred to as “blocks” and “EFRPs”) saw up to 196% growth in 2022 compared to 2021, helping to illustrate their growing relevance and importance within the cleared FX market structure.

However, these trade types do pose a challenge relative to analysis to cost to trade. By definition, these trade types are privately negotiated transactions analogous to OTC activity, and as such, there is no public data on the quoted spreads to aid wider analysis.

While these trade types are critically important to enable customers the flexibility to trade in an OTC manner and lean on OTC liquidity, within current cleared volumes, these trade types still remain a relatively small proportion of the overall flow. Average daily volumes in CME Group cleared FX products in 2022 were around $85 billion, with over 90,000 unique traders, but within all of that activity, around 10% or less of volume in futures (forwards), swaps, or options came via the OTC trading mechanism with the rest being transacted via the central limit order book.

In this context, a more helpful metric may be the number and type of participants from which a customer can obtain an OTC price for any given product – with the higher the number and broader the diversity of participants helping provide comfort on the likely willingness for the customer to get a range of competitive quotes on a given trade.

Without reading it, judging a book is hard – certainly just by looking at its cover. We feel a combination of personal recommendations from trusted sources – combined with detailed information on traded volumes, numbers of other customers, order book spreads, and depth across multiple levels and across multiple time periods – is key, as well as the extent to which one can pair OTC liquidity with the order book.

Feedback from large practitioners can provide helpful insights, such as those in three separate articles: FX futures: A deep diveTradeTech FX, FX futures: Why they matter, and detailed cost to trade and order book analysis in Roll(ing) with it.

Additionally, tools like FX Market Profile and the liquidity tool and our directory of liquidity providers available for OTC style trading can help our customers obtain a far broader view of whether our markets can provide the complementary liquidity they need to their existing trading activity, and whether CME Group cleared products can help them achieve desired efficiencies – be they at point of the trade or post trade.

During 2022 alone, we saw over 250 firms add new currency pairs or start trading CME Group FX products for the first time. We believe that the trading benefits and post-trade efficiencies – such as mitigating the impacts of SA-CCR and margin optimization – as well as the ability to trade without an ISDA or side letter were key drivers in this trend.

If you’d like to discuss how our FX offerings might fit with your needs in greater detail, or for help using any of the tools and resources mentioned, please reach out to the today.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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