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09.23.19
09.23.19

Bringing Foreign Exchange Into the 21st Century

If you have any involvement with the foreign exchange (FX) trading world, you are probably aware that the entire FX process is “antiquated.” While modern banking has moved forward by leaps and bounds, FX is still executed the same way it was done in the last century. 

As the CEO of a company that is re-imagining foreign exchange, I think it is high-time for FX trading to finally move into the 21st century. 

Progress Has Been Slow 

So what is it about the FX market that has kept it stuck in the Dark Ages?

Yes, the days of manual blotters for tracking trades are behind us; and with the arrival of the internet, messages move faster. 

But for all of our advances in communication and online banking systems, FX markets carry a huge settlement risk because it still takes two days to settle a trade and often, there are fines associated with late settlement. That might not be horse-and-buggy territory but compared to the speed of other transactions in today's digital-first world, it is a huge amount of time when dealing with $6.6 trillion changing hands each day. 

Hope Is on the Horizon 

My background in institutional finance, and the experience of leading my own startup accelerator, have provided unique insights into emerging technologies. 

Take blockchain:  because it allows digital information to be spread (not copied), transaction details are transparent. Everyone involved in a trade uses the same distributed ledger to track a trade and works from the same set of data, speeding everything up exponentially and eliminating breaks, reconciliation errors or the need for corrections.

But blockchain is just one piece of the puzzle. Each side still needs to find liquidity (locating the currency to fund the trade). As it stands today, the majority of trades are “naked shorts”. On-demand payment liquidity is necessary. What does that mean? Funds for the trade must be available immediately. The answer? Lenders. And lenders do not have to be big banks. Wealth managers, asset managers, even corporate treasurers who oversee trillions in cash could put their funds to use for even a few minutes in a foreign exchange marketplace.  

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