The evolution of FX markets: A hybrid world of opportunity

The foreign exchange (FX) market has undergone significant changes over the past decade as regulatory mandates, technological advancements, and new entrants have reshaped market structures, execution protocols, and workflows. Eurex has been at the forefront of these developments through the promotion and development of FX futures, cooperation with request-for-quote (RFQ) platforms, and the launch of trading protocols and methodologies designed to offer investors choice in a hybrid market. In this article, Eurex’s Jens Quiram, Global Head of FIC Derivatives & Repo Sales, and Tobias Rank, Head of FX Product Sales, discuss the recent evolution of the FX market and the role Eurex is playing in enhancing market efficiency and choice.

Two core regulatory reforms have driven changes in the global FX market over the past decade. The Uncleared Margin Rules (UMR), introduced in phases starting in 2016, increased the costs of OTC derivatives exposures for firms. At the same time, the transition to the Standardized Approach for Counterparty Credit Risk (SA-CCR) capital methodology significantly altered capital costs for banks active in FX derivatives markets. These changes have incentivized participants to seek capital-efficient alternatives, making listed FX futures a much more attractive option.

“We have seen a big change in the FX markets since the introduction of UMR and SA-CCR,” says Jens Quiram. “Among the most significant changes is the growing interest from banks to onboard to our service both as clearing members and liquidity providers, as the capital rule changes have created an incentive for them to consider FX futures as an alternative to the traditional OTC market.”

This is not to say that the OTC markets have disappeared. On the contrary, the OTC markets have evolved and grown alongside the futures markets to accommodate ongoing demand for the customizability and specificity enabled by bilateral trading.

What has emerged is a vibrant, hybrid market structure in which investors have a choice of where and how to trade. Banks engaging in FX futures can offer clients both off-book and listed liquidity via block trades and Exchange for Physicals (EFPs).

This hybrid approach enables the integration of futures with electronic FX desks and platforms such as the Deutsche Börse-owned 360T. FX futures are symbiotic with the electronification of the FX market and are increasingly being traded electronically, enhancing automation and integration into multi-dealer platforms, thereby improving efficiency and accessibility.

The modern FX market structure allows banks to connect seamlessly to both the futures and OTC markets, offering clear benefits to their client base. This increased participation from banks in FX futures has opened the market to participants who were not traditional futures users, further accelerating the growth of FX futures trading on Eurex.

Rapid Growth

Eurex has taken a pioneering role in the hybrid FX world by bridging OTC and listed markets via its FX futures and the multi-dealer trading venue 360T.

By facilitating bilateral trading and off-book execution without imposing minimum trade size requirements, Eurex preserves the direct dealer-to-client relationships integral to FX markets while offering clients flexibility in execution. Such bilateral trading models complement trading in the central limit orderbook.

Tobias Rank says: “It was important for our bank clients that they were able to maintain the bilateral relationships they have with their clients in FX. The FX futures on Eurex allow them to do that.”

Competitive fee structures and integration with multi-dealer platforms such as 360T, RFQ-hub, and Eurex EnLight further enhance its appeal.

This strategy has led to significant growth in volume and liquidity for FX futures. In 2024, Eurex traded a total of 2.9 million FX futures contracts, with open interest reaching 89,000 contracts—an increase of 68% and 62% from 2023, respectively.

The number of banks that have onboarded also highlights the value of the hybrid model. Since 2023, 11 clearing banks have joined Eurex’s FX network, bringing the total number of banks in the network to 22.

Eurex has seen expansion across all G10 currencies, Scandinavian pairs, and Emerging Markets. This diversification underscores the widespread adoption of FX futures across various currency pairs and market segments.

Future Growth

According to a recent survey conducted by TradeTech FX in collaboration with Eurex in 2024, the majority of buy-side participants already integrate FX futures into their trading strategies. However, nearly three-quarters of firms trade less than 30% of their FX business in futures.

With the same study finding that 75% plan to increase their use of FX futures within the next year, there is significant room for growth in market volume.

“Increasing adoption will require education,” says Rank. “For some buy-side participants, FX futures serve a single-use case, primarily for hedging. But the more we engage with them, the more ideas they generate to integrate FX futures into their existing workflows.

“So, education is key for growing the adoption of FX futures. And new offerings from banks are driving the futurization of the FX market through increased automation of execution.”

The dual trends of enhanced interoperability between listed and OTC markets and the expansion of eFX services from major banks, enabling further automation of execution, will drive futures adoption in the coming years.

To capitalize on this growing demand, Eurex and 360T are developing new orderbook models for EFPs, expanding its distribution by connecting to additional RFQ platforms, and introducing new currencies.

Eurex is also working with a network of participants to develop FX options on futures. Initially focused on block trades, the market strives for greater automating in listed FX options execution and EFP-style models to increase workflow efficiency in what is currently a predominantly manual options market.

Eurex is building its product suite around the belief that the hybrid market structure of futures and OTC markets provides the best of both worlds. This approach aligns the bilateral relationships characteristic of OTC markets with the transparency and efficiency of listed derivatives.

All these developments support the market’s transition to a hybrid structure. This development will not only transform the FX futures landscape but will also shape the future of global FX markets.

“We don’t believe that the future of FX will see everyone trading futures,” says Quiram. “But we are at an inflection point in a generational shift in FX market structure.

“Currently, both banks and the buy-side are exploring opportunities within this new market structure, and we look forward to working with our partners and the broader market to realize these opportunities.”