How the pandemic changed the structure of the forex market

Forex Distribution

Even though the COVID-19 pandemic is far from being over, its effects on the forex market are already visible, as a set of studies claim that its structure may have been permanently altered. 

“Though the pricing and the flows are returning to normal, the way in which those prices are discovered and the flows are channeled have shifted significantly during the COVID-19 pandemic,” believes Ken Monahan, senior analyst at financial service consultancy company Greenwich Associates. 

However, from a specific point of view, this conclusion shouldn’t come as a surprise. 

Over the few last months, we were able to observe increased volumes through single-dealer platform, but also a new trend – voice trading – as investors started to point to relationships with dealers and other players on the market as liquidity started to decline. Even more, they started to break up larger trades and delayed execution of trades, many analysts claiming that such shifts in trading behavior would eventually fade, as the global crisis starts to pass. 

The same study quoted by Ken Monahan reveals that almost 20% of interviewed forex investors started relying on voice trading during the first wave of the pandemic, believing it is “amazing in context”, as forex markets are on their way to becoming exclusively electronic. Also, 67% of the interviewed traders admitted that the relationships within the forex market were “a key takeaway from the pandemic”. 

“This is perhaps a healthy reminder that even in a market as disaggregated and electronic as forex, individual relationships between firms and between people are still the basis of all business,” Mr. Monahan said. 

Finally, the study also revealed that the use of algorithms registered a surprising growth during the pandemic, even though several investors made the switch from the electronic to the personal. 

“Firms were very reliant on relationships, but they were also using every tool in the toolbox,” Ken Monahan added. 

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