Computer platforms are increasingly replacing human traders in the currency trading business, where over $5tn changes hands every day, at a time when regulators the world over are probing forex market practices.
Electronic dealing, which accounted for 66% of all foreign exchange transactions in 2013, up from 20% in 2001, is forecast to jump to 76% within five years, according to Aite Group, a Boston-based consultancy that reviewed Bank for International Settlements (BIS) data.
About 81% of spot trading – the buying and selling of currency for immediate delivery – will be electronic by 2018, Aite said.
About a dozen regulators are investigating banks the world over for allegedly manipulating key foreign exchange contracts. That scrutiny may give banks a chance to lay off more staff, according to Christopher Wheeler, an analyst at Mediobanca in London.
Customers too are demanding greater transparency in pricing and transaction charges, expediting the transition onto electronic platforms.
The shift towards electronic trading can lower costs for clients and increase transparency of pricing, according to Cormac Leech, an analyst at Liberum Capital in London. It can also squeeze margins for banks, he added.
The shift may concentrate trading at an even smaller number of banks, driving out competitors with a lower market share, according to Chirantan Barua, an analyst at Sanford C Bernstein in London.
A decade ago, France's BNP Paribas employed some 15 spot traders and one electronic foreign-exchange team member in Paris. Today, that team, based in London, includes six spot traders and eight people handling electronic trading, an unnamed source told Bloomberg.
About 70% of Barclays's trading is electronic now, as against less than half when it rolled out its first currency platform in 2005, a second source told the news agency.
"A good chunk of spot traders, maybe 30% to 40% of them are at high risk of electronification eating their lunch," said Javier Paz, senior analyst at Aite.
"Foreign-exchange traders are much like stock floor traders: a rapidly dying breed," said Charles Geisst, author of 'Wall Street: A History' and a finance professor at Manhattan College in Riverdale, New York. "Once the banks realize they are costing them money, the positions will dwindle quickly."
FX Market Review
The UK's Financial Stability Board has established a new taskforce to review foreign exchange market practices in light of the raft of investigations into the currency sector.
The FSB said last week it is creating a new sub-group on Foreign Exchange Benchmarks, to look into potential FX market rigging, chaired by Guy Debelle, who is the assistant Governor of Financial Markets at Reserve Bank of Australia, as well as Paul Fisher, executive director for markets, Bank of England.
European regulators are also pressing firms to move more forex trading onto regulated exchanges to increase transparency.
German deputy finance minister Michael Meister, earlier in the month, backed such a revamp of the industry after it was suggested in January by BaFin, the country's financial regulator.
Basel rules too are fuelling the development of a currency futures market, based on exchanges.
The daily $5.3tn (£3.2tn, €3.9tn) currency market is the largest in the financial system and is pegged to the value of funds, derivatives and products.
FX rates are compiled by using data from a variety of submitted provisions on a number of platforms, such as Thomson Reuters. It is then calculated by WM, a unit of State Street, to form WM/Thomson Reuters at 1600 GMT daily.