Dealers are seeing renewed hedge fund interest in the Hong Kong dollar carry trade due to the wide gap between Hong Kong and US rates, after many were stopped out on similar trades in early May.
“Hedge funds [and] fast money [accounts], which reduced some of their long USDHKD position in early May during the USD/Asia sell-off, are engaging in the trade again because of the attractive carry,” says John Luk, head of emerging markets trading for greater China at Crédit Agricole Corporate and
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Baton Systems and Osttra’s joint payment-versus-payment FX network adds central bank-backed settlement option
Baton Systems and post-trade technology vendor Osttra have struck a partnership with Fnality to integrate its blockchain-based payments system to its payment-versus-payment (PvP) foreign exchange settlement platform.
After completing the proof-of-concept, Baton users will be able to use the Fnality Payment System (FnPS) – which keeps a digital record of reserves held at the central bank – for real-time payment of FX transactions around the clock, giving them additional ways to settle trades on
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It takes a market-wide crisis to know how stable the underlying pipework is that supports it. In the $7.5 trillion foreign exchange market, the measure of its stability is liquidity.
This was put to the test last month, as intraday volatility triggered by president Donald Trump’s tariff announcements on April 2 resulted in an explosion in trading volumes, a widening of bid-offer spreads, and extremely challenging liquidity conditions.
So, how much did this event expose the vulnerabilities in the
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Listed FX volumes continue to set records on SGXFX’s flagship contracts as market participants seek secure and cost-efficient sources of liquidity in an increasingly uncertain trading environment
KC Lam, SGXFX
Trading on SGXFX went from strength to strength in 2024 as market turmoil took hold of the markets on the back of diverging interest rate paths between the US Federal Reserve and the Bank of Japan. Over the last 10 months of the financial year, FX volumes at the Singapore exchange grew by a healthy 54%, with the USD/CNH futures contract reaching its highest volume in August as the yen carry trade unwind was in full swing.
The contract continued to perform well in the early part of 2025 as markets wrestled with increasing trade tensions and general uncertainty. The surge of 80% of USD/CNH volumes to $33.5 billion in early April – the second highest since the yen unwind the previous summer – is symptomatic of the increasingly recurring bouts of volatility in FX markets in Asia and more broadly.
“The reason for the recent high volumes is obviously the US-China tariffs and the subsequent measures from both sides,” explains KC Lam, global head of rates and FX at SGXFX. “During times of market stress, there is always a major uptick in trade volumes of the USD/CNH contract on SGXFX, which is used by market participants worldwide to express FX risk. About 40% of our volumes are traded during US and Europe hours.”
As the second most exchange-traded FX futures contract in the world, USD/CNH at SGXFX is often used by market participants for price discovery and formation. Given the contract’s scope and market depth, it serves as the bellwether of general FX market volatility in the region.
Trading of other futures contracts at SGXFX has also grown substantially in recent years. Volumes of the INR/USD and KRW/USD contracts grew by more than 50% during the same period, indicating a general trend in FX trading in Asia towards a trusted exchange such as SGXFX. While over-the-counter (OTC) FX trading remains dominant, FX traded on exchanges has grown and gained significant ground in recent years.
“There is a change in the way market participants trade FX these days,” says Lam. “Primary venues and OTCFX remain important, but there are an increasing number of people looking for price and trend guidance from exchanges – such as SGXFX for Asian currencies and CME for non-Asian currencies. Many market participants – even very large OTC participants – come to us for market data via application programming interfaces to connect to their trading engines for price formation and discovery purposes. The very fact they are using this data suggests we are an increasingly important source of price formation.”
The level of trust earned by SGXFX has been achieved by its determination to provide added value to the region’s capital markets through greater price transparency and efficiencies. To this end, from its inception, the exchange has focused on Asian currencies, which are backed by the thriving flows of Asian commodities and equities.
As FX trading volumes have increased at SGX FX, the exchange’s offering and clientele have evolved in tandem. The community of market participants trading on the exchange is now increasingly global and diverse, with regional and international banks, as well as large institutional firms, seeking to reduce their trading costs through the efficiencies that exchanges provide.
“Trading on SGX FX is very efficient because market participants can offset their margins not only between FX positions, but also with other asset classes they might be trading on the exchange,” explains Lam. “This is particularly beneficial for those who wish to offset the margin on their directional FX positions with their commodities or equities trades.”
To further enhance its offering, the exchange is ramping up the trading of FX options on the exchange – particularly for the CNH contract. In addition, SGX FX is expanding into other emerging market currencies with the launch of its maiden Brazilian real futures contract in June 2025. This initiative, in collaboration with the B3 exchange, focuses on growing Brazilian real futures liquidity during Asian trading hours.
SGX FX was named Best Asia FX derivatives exchange at the FX Markets Asia Awards 2025.
Artificial intelligence has increasingly become an all-encompassing term in financial circles. But in foreign exchange trading, what does it actually mean?
Banks have been vocal about how they have used AI for years when developing their execution algorithms, making documentation easier, and in their client chatbots.
But from a trading perspective, arguably the more impactful use case for market-makers is applying AI and machine learning models to tick data – looking at previous prices to build up a high degree of confidence in future patterns to ultimately forecast what the price of, say, euro/US dollar will be in the next 30 seconds, 10 minutes, or an hour, and so on.
Having a good idea of where the price will go over a given time horizon can inform a liquidity provider’s hedging strategy. For instance, if it shows the euro will appreciate against the dollar over the next five minutes, it makes sense for the desk to hold on to incoming euro inventory until it appreciates before hedging. That way, they can earn the appreciation on top of any bid/offer spread they capture.
There are a lot of unanswered questions about how much of the price will be dictated by these machines
Of course, this inventory management is what any good trader has always done, and some banks have worked on real-time data and analytics models that reflect the market in the present time. But the arrival of AI and machine learning has given them better forward-looking tools that can quantify those forecasts into their prices.
These techniques have been bread-and-butter for the large non-bank market-makers in recent times. It’s understood the large banks have dabbled in it as well over the years, and that smaller banks may look to take it up as the technology becomes easier to access.
What’s interesting are the time horizons that each group focuses on. Banks, for instance, tend to look at shorter periods such as 30 seconds, given internalisation can take them out of risk quickly, whereas the non-bank market-makers concentrate on longer timeframes owing to their greater appetite for this inventory risk.
Furthermore, when market volatility is much higher – like we saw last month – models that focus on patterns within much shorter timeframes can be stable.
On the bank side, though, the question also is how automated can this be? Dealers are understandably wary of allowing AI to take live decisions that affect pricing, but manual checks aren’t really suitable for such brief time horizons.
Some of the more advanced banks have set up internal teams dedicated solely to developing these kinds of predictive trading models.
But even at those banks that are yet to reach the point where they can take full advantage of AI, e-traders have been deploying it in plenty of other front-office areas.
Some look to AI to assess the price sensitivity of certain clients and then suggest to the human sales trader how the price configuration should be calibrated to that specific client. It’s then up to the human to go away and work out exactly how to adjust the client’s pricing.
A bank can also use AI to forecast expectations of demand. For example, if a corporate or asset manager client tends to trade EUR/USD at the same time of day, in the same size and for the same tenor, this gives the bank confidence about how to plan and adjust in expectation of these flows.
Ultimately, AI models have tremendous potential to become a bigger part of banks’ pricing engines. But there are a lot of unanswered questions about how much of the price will be dictated by these machines and whether any banks will be bold enough – or comfortable enough – to fully utilise them.
MUFG is bolstering its FX franchise amid a rising interest rate environment that has led investors to renew their attention in the Japanese FX market. MUFG’s domestic success and growing onshore presence have strengthened the firm’s ambition to become an Asia powerhouse in FX
David Wright, MUFG
After decades of ultra-low interest rates, the Bank of Japan’s determination to gradually raise rates has caught the attention of global market participants. Combined with the recent volatility of the yen, Japan’s new interest rate environment has led international actors to seek the services of such firms as MUFG, which can provide access to broad and deep liquidity in the Japanese market as well as low-latency trading, efficient execution and extensive knowledge of the specificities of the Japanese market.
MUFG is the prime FX liquidity provider in Japan. With a banking presence in the country for more than 360 years, the firm has established deep and profound relationships with a wide array of FX market participants. Like its international counterparts, this domestic client base has become more sophisticated. As a result, the bank has invested heavily in its FX franchise to provide corporates, financial institutions, insurance firms and banks with the means to compete in Japan, Asia and worldwide.
MUFG has broadened the scope of bespoke solutions available to domestic and international clients to cater to these evolving needs. The bank has diversified the number of accessible trading channels, with a particular focus on electronic trading, and has invested heavily in this area to help clients trade more efficiently.
“We’ve made great efforts to invest in and extend our technology capabilities that we’ve developed for our core clients, domestic and global corporates,” says David Wright, global head of FX trading and distribution at MUFG. “Straight-through processing of FX transactions is becoming more prevalent in Japan, and this goes hand in hand with MUFG’s push for digital solutions in transaction banking and payments.”
As the activities of Japanese FX market participants have become more mature, their centre of attention has also become more global. To this end, MUFG is actively broadening its outreach across the world, and in Asia in particular. With an onshore presence in 18 markets across the Asia-Pacific region, MUFG is deeply entrenched and determined to use its strong base in Japan to intensify its operations.
“With the recent unprecedented volatility experienced in global markets, we work with our clients to assure access and liquidity to global markets, including FX. As the largest financial institution in Japan, MUFG is the go-to FX bank in the country,” says Wright. “While we appreciate and continue to focus on our clients in Japan, we want to leverage our position to grow globally. We are present in more than 40 markets worldwide, but focused on expanding our footprint in Asia. Our goal is to become an Asia powerhouse, providing exceptional service to clients in the region and global clients accessing markets in Asia.”
To achieve this, MUFG has expanded its e-FX capabilities in line with the expectations of clients at home and abroad. A key component of MUFG’s strategy to extend the reach and scope of its e-FX franchise is its partnership with Morgan Stanley. In 2008, the two banks formed a strategic alliance to collaborate within global investment banking and, in 2010, established their Japanese securities joint ventures. In 2024, the partnership was further enhanced to include the FX business.
“The rapid electronification of FX trading and the introduction of global financial regulations in recent years have brought about operational and technological challenges that required substantial investment in FX trading technologies,” explains Wright. “Given the productive collaboration between MUFG and Morgan Stanley, both banks decided to enhance the scale of that collaboration to leverage the complementary strengths of each party. MUFG’s immense balance sheet and solid infrastructure in Japan, together with the strength of Morgan Stanley, provide MUFG with a truly global capability.”
As part of the initiative, dubbed Alliance 2.0, the collaboration makes it possible for MUFG to leverage Morgan Stanley’s market-leading FX technology and infrastructure to better service MUFG’s clients through enhanced risk management and execution efficiency.
MUFG was named FX house of the year Japan at the FX Markets Asia Awards 2025.
European financial institutions are concerned that any renewed escalation of trade tensions with the US could spill over into actions that would limit their ability to source dollar funding.
A chief risk officer (CRO) at a European wealth manager says this scenario remains “extreme”, but not impossible.
“One of the scenarios I have been starting to play with is if all US dollars have to be held in US banks,” says the CRO. “You have to understand your third-party risk dependencies on large banks.”
U
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Available liquidity for single clips dropped to as low as $20 million ahead of tariff pause
Liquidity conditions in the global spot foreign exchange markets have been strained since US President Donald Trump announced his so-called reciprocal tariffs last week and was getting even worse before yesterday’s decision to temporarily pause the duties.
FX dealers say liquidity collapsed despite volumes spiking across both algorithmic and principal spot trading desks.
“Under typical conditions if you swept all EUR/USD order books, you’d be able to do maybe $70–80 million in one go if you really
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The sharp fall in the US dollar following President Donald Trump’s “liberation day” tariffs announcement saw intense activity on foreign exchange options desks, leaving dealers rushing to buy volatility to re-hedge EUR/USD books as spot surged.
“It was manic… it almost made the Turkish lira [moves] irrelevant,” says one head of FX derivatives at a large European bank.
The US Dollar Index fell 3.2% overnight after the announcement on April 2, one of its worst days since 2022, as investors fretted
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The move to one-day settlement for US equities, known as T+1, may be contributing to record liquidity shortfalls at the National Securities Clearing Corporation (NSCC), which clears all US-listed stock trades.
NSCC, a subsidiary of the Depository Trust & Clearing Corporation (DTCC), reported a liquidity shortfall of $7.1 billion in the fourth quarter of 2024, which it blamed on year-end “index rebalancing”.
The shortfall represents the gap between the qualifying liquid resources (QLRs) –
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Since the start of Donald Trump’s second US presidency, many of his tariff-related social media posts have tended to appear late New York time.
This piles extra pressure on the Asia trading session when G10 currencies are less liquid and creates risk management challenges for foreign exchange options market-makers.
Barry McCarthy, head of FX derivatives trading for North America at Deutsche Bank, says this is particularly the case if news lands when markets are closed over the weekend, making Asia
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Price gaps in spot FX markets could be exacerbated by algos trading on headline risk
The increase in sudden large movements in foreign exchange spot markets driven by President Donald Trump’s chaotic tariff announcements may be being amplified by market-maker pricing algorithms reacting to changes in intraday volatility and limiting how much risk they can take on, say some dealers.
As spot FX market flows have moved to electronic channels over the years, liquidity providers (LPs) increasingly rely on pricing algos to react to market news and set bid/offer spreads. An estimated 75
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Non-bank market-maker XTX Markets has hired Sam Brook for its European foreign exchange and equities trading team.
Brook joins from NatWest Markets, where he spent nine years in the UK bank’s electronic FX trading unit, primarily working on the buildout of its e-FX market-making desk.
As part of the Europe, Middle East and Africa distribution team at XTX, Brook’s role will focus on providing customised and low-market-impact liquidity to clients.
Based in London, he will report to Jeremy Smart
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Deutsche Bank has appointed Richard James from JP Morgan to run its foreign exchange single-dealer platform, AutobahnFX.
James will be responsible for the growth and distribution of the bank’s electronic FX client offering for cash and derivatives, as well as algorithmic execution on the platform.
He will be based in London and report to Ollie Jerome, head of European FX product.
“Richard will lead the development and distribution of the bank’s electronic FX product offering, keeping us relevant
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In a challenging environment, demand for J.P. Morgan’s FX overlay market services has risen significantly as market participants seek to navigate the hedging and execution complexities of the FX market
The awards
Best FX overlay manager
Best liquidity provider for FX spot
Best liquidity provider for FX options
Best liquidity provider for financial institutions
Best single-dealer platform
The storm of geopolitical, economic and regulatory events that has rocked the FX market over the past few years has made managing currency risk a difficult proposition. Wars in Ukraine and the Middle East, heightened volatility stemming from diverging interest rate regimes, and the impact from the introduction of the standardised approach to counterparty credit risk have prompted many institutional managers to re-evaluate their hedging strategies and overall currency risk. Many have turned to FX services providers such as J.P. Morgan to manage that risk.
“In the current environment, market participants are particularly keen to have firms that are FX experts facilitate their currency risk management functions,” says Sashin Chander, J.P. Morgan’s global head of currency overlay solutions.
“J.P. Morgan is the logical partner. We have one of the most complete suites of FX execution capabilities on the Street. Whether pricing, cost-effectiveness, credit risk or any other objective, we have an execution capability.”
“Beyond our suite of execution capabilities, our data insight is also impactful,” Chander adds. “As one of the biggest FX banks1, we generate a lot of data, but what makes it worthwhile for our clients is how we use that data to fine-tune the outcome of their workflows: by optimising the process of calculating FX risk and executing their hedges.”
J.P. Morgan’s FX Services data strategy provides clients with greater market transparency, enabling a view of the cost of liquidity and the cost of capital where liquidity in the competition execution model is selected, earning the bank recognition during the awards process.
While J.P. Morgan provides a rules-based solution to managing its clients’ FX overlay strategies, the bank also reports on the performance of clients’ hedging portfolios using the data it has gathered. Analysis of the factors contributing to the FX hedge’s under- or over-performance – such as cost of carry, bid/offer spread and time delay – can then be used to recalibrate clients’ hedging strategies to improve economic outcomes.
This includes the use of FX heat maps that allow clients to visualise liquidity patterns, FX spreads and trading volumes – which helps clients identify opportunities to improve the execution quality of their FX orders – using the execution methodology that best fits their objective. Furthermore, the bank can analyse clients’ specific currency overlay data and past activities with them, delivering tailored insights and empowering clients to optimise their hedging strategies and make informed decisions to improve outcomes.
Clients are also given access to a suite of customisable trade reports supported by downstream integration with industry‑wide systems, or other client-specific platforms, enabling a detailed view of the services J.P. Morgan is providing them. With this oversight, clients can measure the execution quality of processed trades, which can help with efficient cashflow management.
On the execution side, J.P. Morgan addresses its clients’ needs through a rules-based approach that enables them to define their own bespoke execution strategies across a full suite of methodologies. This includes @marketexecution, where all trades are sent to J.P. Morgan’s internal market-making desks for immediate pricing. Alternatively, client orders can be executed referencing a supported public benchmark or, if preferred, through the bank’s suite of algorithmic execution strategies.
The last alternative is a hybrid model that combines the operational ease of principal trading with the competitive pricing benefits that agency execution can provide. Dubbed Liquidity in Competition (LiC), this hybrid solution provides pricing across a pool of preferred liquidity providers with the benefit of facing J.P. Morgan as the only counterparty. As a result, participants avoid the operational work of maintaining pre- and post-trade workflows with multiple banks.
Another benefit is that the competitive nature of pricing through LiC can assist in satisfying clients’ best execution obligations and, with trades channelled through J.P. Morgan, information leakage to the market is minimised, which can result in a better outcome. When clients seek liquidity under their own ticker/fund name, details are revealed as to which fund is looking for a price in which currency and size, and so on.
“Since dealers compete for trades, client costs are reduced, but they still benefit from J.P. Morgan’s credit standing to secure the best price available on their panel of predefined banks,” says Chander. “Our dedicated FX Services desk sits separately from the market-making business and is not judged on profit and loss but rather on the quality of execution and minimising market impact.”
“With central banks adjusting interest rates at different paces, the biggest likely cost for clients is the interest rate differential,” he notes. “While they cannot control the cost of carry, LiC allows them to control the cost and quality of execution. Clients benefit from the breadth of access to liquidity, lower costs and market impact for asset managers and owners that routinely roll large, passive hedges.”
Adding granularity to hedging models
As the portfolio hedging market becomes more mature, Chander expects clients will want to add greater granularity and optionality into their overlay strategies, while maintaining some form of tactical control to direct the outcome of their hedges.
Megan Jones, J.P. Morgan
“Asset owners, such as Australian superannuation funds, have complex currency hedging needs, and many of the enhancements to our portfolio hedging currency overlay offering have been built with these in mind,” says Megan Jones, head of Asia-Pacific FX Services sales at J.P. Morgan. “One enhancement, as institutional investors continue to internalise investment management functions, is the ability to automatically adjust the accompanying hedge in line with the trading of the underlying security for asset classes such as fixed income. This will mitigate risk arising from a delay between the trading of the asset and adjusting the accompanying hedge, allowing the portfolio manager to focus on managing the underlying asset class.”
“We are investing heavily in our portfolio hedging capabilities to create a lot of flexibility in our platform,” says Chander. “I want to create a platform that is so flexible and so intuitive that, to a portfolio manager, it feels like we are sitting on the other side of their desk. And, with that flexibility, we’re going to see more proliferation in the delegation of portfolio currency risk management.”
“The key to achieving any level of granularity in portfolio optimisation is large quantities of correctly targeted data,” he points out – without which, actionable insights cannot be delivered. “But there has to be the right balance in the amount of data we deliver. It should not be excessively complex, but just enough that clients can hold us to account while being straightforward enough that they can fine-tune their strategies every so often to focus on their core businesses.”
J.P. Morgan was voted Best FX overlay manager, Best liquidity provider for FX spot, Best liquidity provider for FX options, Best liquidity provider for financial institutions and Best single-dealer platform at the FX Markets e-FX Awards 2024.
