"FX Risk Transfer" – Risk Management and Efficient Trade Execution in a Distributed Wholesale Market Structure
This makes foreign exchange an essential requirement for risk reduction (hedging) through a transfer of FX risk, and for foreign currency payments. The latter being a composite product consisting of an FX risk transfer and a payment component. Lately, this payment component has attracted considerable interest, as innovation has driven improvements to the customer experience.
The wholesale FX “market” is distributed, with many trading venues and participants. Some market participants act as “market makers”, accepting risk from other participants and “warehousing” this risk while waiting for offsetting transactions. Other participants operate an “agency” model, aggregating liquidity from multiple sources to seek an instantaneous match, without intermediate warehousing. A mixture of both of these models is typically used by most liquidity providers. Market users generally access this market via intermediaries and agents such as banks and brokers.
Modular Financial Technologies launches new automated FX risk management and execution solution
Modular Financial Technologies, a technology solutions
provider for wholesale financial markets, launched a new automated market risk management
and execution solution for Foreign Exchange (FX). This software service allows clients to
benefit from the potential netting, reduced market-impact and lower execution costs of a risk warehousing solution, as well as lower operating costs.
Market participants and users have exposure to FX risk through global trade, international
financial markets and foreign currency payments. The market is, therefore, used to transferring
FX risk between counterparties and its participants employ a range of risk management
strategies, from agency to risk warehousing. Access to the wholesale FX market has
traditionally required a bespoke and costly trading infrastructure, together with risk
management logic (human or automated), and analytics to make best use of the market