The Americas: Online Trading Slowly Catching on with Treasurers

By Platt, Gordon | Global Finance, September 2001 | Go to article overview

The Americas: Online Trading Slowly Catching on with Treasurers


Platt, Gordon, Global Finance


The telephone, not the Internet, will be the main vehicle for initiating trades in the foreign exchange market for some time to come, due to the importance of personal relationships between buyers and sellers, according to a study by Newton, Massachusetts-- based Meridien Research.

"As corporate treasurers and other financial professionals become more comfortable with using the Internet for financial services needs and learn to use it more effectively, an online approach to forex trading increasingly makes sense," says David Potterton, research director at Meridien.

Banks and other "sell-- side" participants in the market are eager to persuade clients to move to online marketplaces, which are far more efficient and lower in cost. However, many hurdles remain in the path of widespread acceptance of online systems, Potterton says. "The fact is that the vast majority of trades today are initiated on the telephone,"he says."Current estimates of online trading volume are only in the 5-7% range."

Meridien forecasts that online systems will continue to increase in importance as additional buy-- side institutions overcome their hesitation and recognize the benefits of straight-through processing and order execution. The study estimates that 10-15% of buy-side clients will be using online systems within the next 12 to 18 months. "The growth trend will continue, and there is no ceiling at 15%," Potterton says."But the technology is changing so rapidly that we don't believe anyone can forecast beyond 18 months."

Meanwhile, the foreign exchange market remains entrenched in traditional processes, and companies still place a great deal of value on their relationships with foreign exchange traders."Many corporations and fund managers, regardless of size, have developed relationships with the foreign exchange dealers which on occasion transcend getting the last few pips on a rate," the Meridien study says.

Meridien provides research to users and providers of financial industry technology. …

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