THETRADETECHFX DAILY from the floor
What does genuinely differentiated liquidity look like in 2026? For liquidity to be genuinely differentiated it has to add something that is not already available through existing banking relationships. Simply connecting to another venue that aggregates the same global bank participants is unlikely to deliver meaningful diversification, regardless of how it is marketed.
There are three areas where I believe true differentiation could exist. The first, is access to local participants in emerging and, particularly, frontier markets, where domestic liquidity could be different from what is available through international banks. The second, is more direct access between buy-side participants. The third is delivering access to alternative banking counterparties with different risk appetites- for example, institutions willing to provide sharper FX swap liquidity, who one is not already permitted, perhaps from a credit rating point of view, to execute directly with.
The common theme is not the venue itself but the type of participant you are facing. Differentiated liquidity is ultimately about expanding the diversity of counterparties rather than increasing the number of execution venues. Without that diversity, a new platform would likely represent merely another route into the same underlying liquidity pool.
Has venue choice become more about credit than price? There is certainly an argument that, in some parts of the market, venue selection is becoming increasingly influenced by credit considerations rather than purely by execution price. This is particularly evident among private market participants, such as private credit, private equity and real estate funds, where credit and counterparty relationships can have a significant impact on trading decisions.
That said, I think it is still too early to argue that this represents the dominant dynamic. Banks are continuing to improve their ability to measure client profitability and the balance sheet consumed by individual relationships, but most have not yet reached the point where these costs are consistently reflected at the underlying client level.
As banks develop more sophisticated analytics and place greater emphasis on accurately allocating capital and credit costs, venue choice is likely to become increasingly intertwined with credit appetite, with it becoming another component of execution quality, rather than merely a post trade consideration.
Where is workflow fragmentation still costing desks the most time or efficiency? The biggest source of workflow fragmentation today stems from the growing diversity of underlying clients. For many asset managers
The future of FX liquidity
The TRADE sits down with NATHAN VURGEST, director of trading at Record Currency Management, to explore how buy-side FX desks can find genuinely differentiated liquidity, reduce workflow complexity and better understand the growing importance of counterparty dynamics.
and currency advisers, client requirements have expanded considerably over the past decade, both in terms of investment strategies and operational expectations.
Ten years ago, it was possible to build a relatively standardised workflow that comfortably served the vast majority of clients. Today, that same workflow may only accommodate a minority. Different reporting requirements, execution preferences, operational processes and regulatory considerations mean that desks increasingly have to support multiple workflows simultaneously rather than one consistent standardised operating model.
That inevitably creates inefficiencies. Technology has improved significantly, but the challenge is no longer simply automating a single process- it is managing an environment where exceptions and nuances are the norm. Teams spend more time navigating bespoke client requirements, integrating different systems and ensuring operational consistency across a broader range of scenarios.
Therefore, in many respects, the issue is not that individual workflows are inefficient; it is the cumulative complexity created by supporting different variations at once. As client bases continue to widen, managing that operational complexity will remain one of the buy-side’ s most persistent efficiency challenges.
Which buy-side FX challenge has proved hardest to solve despite years of investment in technology? I would argue that one of the industry’ s most persistent unresolved challenges remains understanding the true cost of FX trading.
Conceptually, it is remarkable that in almost any other type of business and industry, organisations would expect to know both the precise cost of delivering or making a product and the revenue generated from selling it. Yet, in wholesale FX, many banks still struggle to attribute the full cost of an individual trade- or supporting an individual client- against the revenue it generates. Despite years of investment in technology, many institutions continue to manage these economics at an aggregated or business-line level.
Whether this reflects the technical complexity of FX businesses, the scale at which banks operate, or just merely a lack of appetite to understand this information, is open to debate. If profitability remains acceptable at a higher level of aggregation, the commercial incentive to solve the problem in greater detail may not yet be compelling enough.
However, as funding, capital and operational costs continue to rise, the pressure to understand the true economics of every underlying client and every trade could increase, with implications for pricing and credit allocation.
From a buy-side perspective, while this isn’ t a direct problem, firms should want to understand how valuable( or costly!) they are to the liquidity providers which they choose to transact their revenue‘ wallet’ with, and those that are efficient users of bank balance sheets and can offer consistently profitable relationships are likely to be better positioned as banks become increasingly selective in how they deploy capital.
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