The foreign exchange (FX) market is the largest in the world; its daily turnover exceeds $7 trillion. FX began as manual and slow trading, where transactions were conducted over the phone, and has since evolved into a high-tech, globally accessible ecosystem. The introduction of electronic FX platforms later marked a milestone in the evolution of the global financial system.
Pre-1990s: Voice Brokerage and Manual Trading
Initially, FX trading was mainly executed via voice brokerage. Traders called to negotiate deals with brokers or other traders. In top-tier banks, there were rooms dedicated to trading, and each had multiple phones and loudspeakers. The market structure was decentralised and opaque because banks traded among themselves within a closed network. Price was reliant on personal relationships and trust. The execution was also slow, and it could take minutes or longer to finalise the order, causing errors and misunderstandings. Hence, the manual trading system did not align with the participants’ demand for speed and transparency of transactions.
The Emergence of Electronic Platforms: 1980s–1990s
The turning point for FX came with the launch of the first electronic platforms, which will be discussed further.
- Reuters Dealing (1981)
Reuters Dealing was the first platform to transfer banks’ negotiations and trades in an electronic format, replacing phone calls with real-time messages. Early versions (Dealing 2000-1) functionally resembled a chat system because banks exchanged offers and manually negotiated prices. Later, automatic matching functionality (Dealing 2000-2) was introduced. The new system allowed dealers to enter their buy/sell prices directly, and after that, the tool automatically matched compatible orders. However, a drawback was the lack of user anonymity. The platform was especially popular for GBP/USD and AUD/USD currency pairs.
Even though full automation of the FX trading was still in progress, Reuters Dealing improved the order execution speed and reduced potential miscommunications.
- EBS (Electronic Broking Services)
EBS, an interdealer electronic brokerage system, was developed by a consortium of large international banks (JPMorgan, Citibank, UBS, etc.) to compete with Reuters in the FX market. Launching the Anonymous Central Limit Order Book was EBS’s most notable innovation, where orders automatically matched at the best price without disclosing the personalities involved.
EBS was primarily used for trades in international currencies, such as EUR/USD and USD/JPY, as well as gold and silver. It focused on market depth display, improving transaction transparency and providing access to dynamic pricing. Moreover, the platform could be integrated with banks’ internal trading systems and high-frequency trading firms. EBS later became standard for transactions in international currency pairs, with its quotes as benchmarks for fair pricing.
- Reuters vs. EBS: The Competitive Dynamic
Both Reuters and EBS are electronic trading systems for interbank (interdealer) transactions. They replaced voice brokers, so banks did not need to call each other to execute trades.
Reuters Dealing and EBS automated price quoting and order matching, but their approaches differed. The first platform started as a negotiation-based system, where trading operations were disclosed between counterparties. The second platform initially was order-based and anonymous, allowing automatic matching without negotiation. Regarding currency pairs, Reuters dominated GBP/USD and AUD/USD trades; EBS was popular for EUR/USD, USD/JPY, and precious metals. Over time, the competition between these companies raised the bar for privacy and efficiency in the FX market.
The Era of Proprietary Platforms and ECNs: 1990s–2000s
Single-Dealer Platforms (SDPs)
In the 1990s, single-dealer platforms (SDPs) emerged. These are electronic platforms developed by central international banks; examples include Barx (Barclays), CitiFX Velocity, and JP Morgan’s eXecute. SDPs opened access to the bank’s prices, post-trade services, and fast execution. Thanks to platforms, banks could strengthen client relationships and compete for loyalty.
In the 2000s, Electronic Communication Networks (ECNs) were developed. These dealer-to-customer platforms allowed participants to trade anonymously, with liquidity aggregated from multiple sources. Currenex is an example. The impact of ECN platforms has been significant since they lowered costs (cutting operational costs by automating execution) and narrowed spreads (more buyers and sellers started participating in trades). ECNs also offered convenience, as clients could access multiple banks through a single platform.
In 2005, the launch of MetaTrader 4 (MT4) was vital in showcasing the accessibility of the FX markets because institutional liquidity was available to everyone via brokers. The FX market became inclusive by hosting institutional and retail participants.
FX and Globalisation
Electronic FX trading has long been common in financial centres such as London, New York, and Tokyo, and its expansion into developing markets is still ongoing. Asia, Latin America, the Middle East and Africa are adopting electronic platforms for international trading. Some countries, such as Nigeria and Indonesia, are building local electronic FX systems to reduce reliance on cash. However, due to capital controls and limited currency convertibility, trading in these regions may be restricted to domestic markets. Local banks work to balance regulatory compliance with technological innovation.
Modern Electronic FX
Now, over 90% of institutional FX trading is conducted online. The market is rapid, as algorithms execute trades instantly; transparent thanks to visible order books and aggregated quotes from multiple liquidity sources; available in mobile apps worldwide; and integrated with risk management and analytics.
Reuters Dealing and EBS have remained in the financial market and continued to improve. For instance, EBS branched into EBS AI, providing more personalised solutions and integrating modern technologies.
Mobile and Cloud Solutions
Cloud-based infrastructure has drastically changed how FX markets operate. Now, participants can monitor positions, analyse charts, and trade directly from their phones, not traditional desktop terminals. Banks have invested in creating their mobile versions, allowing traders to receive real-time push notifications and providing more security with biometric authentication.
ECNs use cloud-based platforms like AWS and Google Cloud to deploy pricing engines, conduct testing, and store datasets. This transformation is also cost-efficient and resilient, especially during volatile events akin to crises and critical central bank decisions.
The Future of FX
The future will bring many new advancements for FX. Such advancements include blockchain integrations, AI, and improved algorithmic strategies. Online platforms are becoming more versatile by consolidating spots, derivatives, analytics, and risk management into one ecosystem.
To conclude, the evolution of electronic FX trading is a story of transformation from a manual market and voice brokerage into an automated, fast system. It is not the end, as the market continues to evolve and embrace new technological solutions, becoming even more efficient.
