The $7.5 trillion per day FX marketplace is highly fragmented, with a proliferation of venues offering liquidity and access to trade. Yet there are only a few core venues which underpin the market and provide foundational liquidity and a source of price formation. CME Group’s EBS Market and FX futures are two such venues, with BIS highlighting in an April 2023 paper that “A growing number of market participants of all types now seem to consider currency futures traded on the CME as at least a close cousin of the primary [spot] CLOBs”.“Some market participants…argue that FX futures do, in some cases, lead price discovery in FX spot.”
Over the past three years, CME Group’s FX futures volumes have grown at a 10% compound annual growth rate trading more than $85 billion per day in 2024, with an all-time record trading day of $314 billion. CME Group’s customer ecosystem is large and increasingly diverse with over 95,000 individual traders and over 1,000 institutional accounts active year to date, providing a differentiated and complementary pool of liquidity for traders to interact with.
Despite this, a number of firms active in FX, cannot natively interact with FX futures liquidity or the customer ecosystem because they don’t have clearing or futures market relationships. This creates a “two tier” market of those who can interact with FX futures and primary venues, and those that cannot.
To solve this, on April 13, CME Group will launch FX Spot+, a new all-to-all spot FX marketplace that will bring the market together like never before. It will translate futures liquidity into spot terms, expanding liquidity access to OTC traders, without the need to establish futures market relationships, or manage the forward risk inherent in futures contracts.
2024 ADV in USD1 |
2024 High Volume Day |
YoY ADV Growth |
|
---|---|---|---|
FX futures |
$86 bn |
$314bn2 |
+10% |
FX Link |
$4bn |
$13.5bn3 |
+90% |
FX Spot+ leverages the implied matching technology and basis spread of FX Link to atomically link the FX futures and OTC spot FX markets, providing enhanced liquidity and trading opportunities for FX futures and OTC spot FX traders alike.
"CME Group's FX futures trade material volumes across all of the G7 currency pairs as well as in Mexican peso, so allowing Spot traders access to that liquidity via FX Spot+ has the potential to have a huge impact on FX market structure." said Paul Houston, Global Head of FX, CME Group.
Resting liquidity in FX futures and the FX Link spot-futures spread will combine to represent standalone resting spot interest in FX Spot+. The result will be futures liquidity with the forward points removed, allowing spot participants access to new liquidity. In addition, resting orders in FX Spot+ will combine with FX Link to represent resting liquidity in FX futures, increasing passive matching opportunities for spot participants previously not possible.
Footnotes
- Through September 30, 2024
- June 12, 2024
- August 5, 2024
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.