The underrated value of a quiet market

However, it seems that the foreign exchange market works to altogether different dynamics. It is when markets are becalmed, when volatility is low and when traders are twiddling their thumbs that innovation occurs. A look at the last couple of issues of FX Week sees banks moving into new areas at a time when markets are being annoyingly predictable.

Bank of America is beginning to see the fruits of the acquisition of algorithmic trade firm Financial Labs back in February. The launch of an enhanced suite of e-trading capabilities was aided by the team of astrophysicists from the Massachusetts based firm. It is heartening for a CND-sympathising utopian such as myself to think that a group of people who might once have been co-opted into Cold War code-breaking are in the business of increasing wealth, not increasing the likelihood of a nuclear holocaust.

Similarly, Barclays Capital is making sound use of its investment in e-commerce to develop algorithmic trading facilities in the shape of Barx PowerFill. It is doubtful whether the bank would have had the motivation or inclination to pour the time, money and effort into this initiative if the cash was rolling in from a hugely volatile market with wide spreads.

Obviously, sooner or later volatility will pick up again and banks and brokers will once more rake in the easy money. However, it is those banks that continue to pile resources into the less obvious ways of making money that will win in the long term. Banks that did not make considerable investments in e-commerce in the late 1990s are those that have slid down the league tables in the past few years. However, what is almost inevitable is that history will repeat itself, and some of the biggest banks now will see their FX stock decline due to a lack of long-term investment.