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Spot Matching and the FX market

Paul Clarke
Head of FX Venues

In the FX market, Spot Matching enables participants to access firm pricing and achieve high certainty of execution. How does it compare to relationship trading and what are the benefits for FX traders in times of volatility?


  1. Spot Matching is the trusted primary FX market for Commonwealth, Scandinavian and Emerging Market pairs.
  2. FX Spot Matching has several unique benefits for traders in terms of its single order book that supports all-to-all trading with firm prices, encouraging genuine trading interest.
  3. During times of market uncertainty and volatility, FX Spot Matching volumes spike, as traders seek firm pricing and certainty of execution.

Foreign exchange (FX) trading has primarily occurred in over-the-counter (OTC) markets, where relationship trading plays a vital role in the dealer-to-client and interdealer markets for accessing liquidity and managing risk.

Relationship trades can occur electronically through request-for-quote (RFQ) platforms, over the phone or in dealing chats. Markets that trade primarily through OTC relationships are by nature highly fragmented and lack transparency.

Throughout the 1980s and into the 1990s, sell-side FX traders had to piece together market levels through voice broker conversations, their trading activity, and paper deal pads.

This all changed in 1992 with the launch of central limit order books (CLOBs) for spot FX trading. Finally, interdealer participants had a central location to view and submit genuine trading interest, access liquidity and have access to benchmark rates.

Although the core principles of FX order books are similar across platforms, trading community behavior and subtle, but important, platform features determine primary markets.

Matching was the first electronic CLOB for spot FX, and was embraced by traders for illuminating an opaque market. Linked to our global presence and heritage, Matching became the trusted primary market for Commonwealth, Scandinavian and Emerging Market currency pairs.

Spot Matching and the FX market
Simple Bid/Offer or Iceberg resting orders can be entered into the book

Spot Matching’s primary market features

Compared with relationship trading, Spot Matching’s primary market offers unique benefits to traders:

  • Price making: A key advantage of CLOB trading is the ability to place market bids and asks, as well as take by trading against shown prices. Using home buying as a comparison, CLOBs enable participants to “make an offer” (place a bid in the market) vs. paying an owner’s listed asking price. Price takers pay spread to access liquidity. Price makers, however, earn spread for providing liquidity. Skilled traders can use price making to earn spread and generate profits.
  • Firm orders only: All orders in Spot Matching are firm. When two orders are matched then as long as both participants have available bilateral credit in the system a trade will be completed. There is no last-look in Matching. This encourages genuine interest to trade and client confidence that they can get filled when they most need to.
  • All-to-all: There is a single order book in Matching. All participants can see the same aggregated view of the book and anonymous feed of completed trades. This encourages a transparent and fair market for all participants.
  • Anonymity: In relationship trading, the price requester reveals information to the counterparty, or counterparties in the case of a multi-dealer platform, about size and potentially even direction regardless of whether a trade is completed. The order book in a CLOB is anonymous. Aggregated volume at each price level is made available to participants through market data updates, but only once a trade is completed do the participants know the identity of their counterparty. Used strategically, anonymous trading can reduce execution costs.
  • Credit screening: To trade on Matching, participants must have credit access to the majority of a market by volume. This promotes strong communities with genuine trading interest. All pricing is firm, all-to-all, and with no last-look. This certainty of trade promotes trust and trader confidence.
Spot Matching and the FX market
Matching shows participants their credit-specific view of the single order book

How has Spot Matching evolved over time?

The Matching community started with interbank manual traders. Special dedicated keyboards and keypads with keys for “yours”, “mine”, “bid” and “offer” were created, and interacting with the market became second nature for traders.

As technology advanced, the first Matching API was created allowing computers to access the market. And with the growth of FX prime brokerage in the early 2000s, the Matching community was opened up for the first time to buy side asset managers and hedge funds.

With this new mix of participants across the buy and sell side and pricing via both manual and electronic channels, careful investments into the Matching platform were required to increase performance while maintaining fair access for all participant types.

This included a complete upgrade of the platform technology, new APIs, minimum quote life (MQL), more frequent market data updates, the launch of a proximity hosting service and more recently a new randomization mechanism for orders and faster market data via a new Matching Binary Multicast Feed.

As a result, manual traders enjoy a high certainty of execution when price-taking on Spot Matching, with fill ratios higher than API driven taking orders to trade.

In addition, since the launch of the randomization mechanism and the Matching Binary Feed, spreads have compressed and fill ratios have improved in general across the platform.

Spot Matching in today’s FX market

Today, Matching plays a pivotal role in the functioning of the FX market.

As the primary market in Commonwealth, Scandinavian, and Emerging Market pairs, its deep liquidity allows market participants to efficiently transfer risk.

And in times of market volatility, Matching volumes spike as traders seek firm pricing and certainty of execution.

Matching data is relied upon heavily. It is used as a reference rate in price discovery, the management of client orders, FX options contracts, WM/Reuters fixings and for determining the day’s high low range.

Central banks rely on Matching for price discovery and intervention capabilities. Banks and other market participants use Matching data in their pricing engines. And with over 70 percent of FX volumes executed electronically, these pricing engines are essential for servicing clients.

In its core currency pairs around the world, it will be hard to find a price that has not been shaped by the Matching rate.

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