August 20, 2024 — Companies around the world have an opportunity to save money and reduce risk through a transformation of their FX desks.
A highly efficient and effective corporate FX desk can improve a company’s liquidity management and currency hedging, while also supporting other key objectives of the Treasurer. However, many companies continue to view FX as just an ancillary part of their relationship with their corporate banking partners.
“In an age of digital innovation companies who are not giving FX the attention it deserves could be leaving real benefits and money on the table,” says Stephen Bruel, Senior Analyst in the Market Structure & Technology group at Coalition Greenwich and co-author of Corporate FX Trading—The Value of Relationships and Execution Quality.
The More Electronic the Better
One reason corporates have been slow to upgrade their FX trading platforms is that many companies continue to view FX as just one component of their broader relationships with banks. When deciding where to allocate FX trade flows, companies often consider their broader relationship, considering banks’ complementary services like lending in addition to the quality of FX service provided by counterparties. In fact, global corporates say they allocate almost half (48%) of their total FX trading business to counterparties on the basis of lending and cash management.
Today, however, corporate treasury departments have access to digital tools like transaction cost analysis (TCA) to measure the results of individual trades and the performance of the trading desk overall, as well as increasingly sophisticated algorithmic trading strategies that are adopted by asset managers and other FX market participants.
“Corporates globally should be increasing the focus and resources devoted to FX,” says Stephen Bruel. “They should be encouraging their desks to adopt more advanced tools—the more electronic the trading, the better the data available to analyze execution quality and optimize results.”
Corporate FX Trading—The Value of Relationships and Execution Quality compares practices between corporates and asset managers, analyzes how corporates allocate trading volumes among counterparties and discusses how the shift to electronic trading and digital innovation is transforming corporate FX trading.