Voice brokers are adapting to survive

Downsizing voice broking on the majors – a core part of its business just a couple of years ago – could be seen by some as an admission that the company has failed to deliver in these currencies. Then there was the purchase of EBS by Icap – potentially unsettling for voice brokers wondering about long-term job security. There has, by all accounts, been something of a culture clash between EBS and Icap, which is unsurprising given the different styles the two businesses have.

It would not be surprising if voice brokers treated the electronic spot broker with suspicion. After all, dealing with machines is so much more straightforward and cost effective than having those costly and difficult humans getting involved.

However the pattern of diminishing returns leading to pressure on costs and therefore reduction in headcounts will be familiar to all major players in the market. Voice brokers can take heart from the fact that headcounts at banks have levelled off after seeing a substantial drop a few years ago.

Banks often offer prices to certain liquidity venues that actually lose them money so that they can ensure they maintain a sizeable chunk of market share. The almost exponential growth in algorithmic FX trading is testament to the fact that margins on the majors are at best wafer thin.

Banks are therefore often using tight pricing in spot on the majors as an eye-grabbing and often loss-making way of luring what are increasingly flighty clients. They can then try and drive more profitable business from the relationships that this business generates. Brokers do not have this luxury. The business they do with clients needs to be worthwhile in itself.

This makes a move to less liquid currencies with wider spreads an eminently sensible business decision. Emerging markets currencies still deliver margin that can provide a living for those who trade them. So it's the old story about being adaptive enough to survive. There will always be a place for voice brokers who are ready to move into new geographical markets and learn how to offer new transaction types.