The Greenwich Perspective: A Bright Future for FX Futures


 

Greenwich Associates recently published a paper assessing the value and viability of FX futures as a proxy to the OTC FX market.
 

Methodology

  • The report assesses the economic benefits of using FX futures through a quantitative total cost analysis (TCA) model and by analysing the impact of regulatory change to the FX market.
     
  • Greenwich interviewed 41 buyside institutions and nine major FX sellside institutions to validate inputs to the quantitative TCA.
     

Initial Findings

  • On average, it was found that in certain circumstances, FX futures can generate upwards of 75% savings over OTC markets. Naturally the exact savings depend upon institution, trading style, holding time, currency pair etc.
     
  • The report also highlights the impact of Basel III costs and the implications of MIFID II on FX markets. For the buyside it was found that these costs were not yet fully priced into bid-offer spreads and other fees, but when this inevitably happens the cost advantages of FX futures become even more pronounced.

 

Read the Report

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