The days of having to wait until Monday morning to react to news that broke during the weekend may be numbered for some investors.
From this weekend, fintech company LMAX Group plans an “institutional grade” venue that may help some traders react to tweets from President Donald Trump, elections or breakthroughs on global negotiations. LMAX, which already has a crypto currencies platform, says it can offer the liquidity needed to keep prices stable.
“Everyone expects to do on a Sunday what they can do on Monday, but strangely the market closes at 5 o’clock” on Friday, David Mercer, CEO of London-based LMAX, said in an interview. “It makes no sense. It’s inevitable that the next generation will just expect this.”
Working from home during the coronavirus pandemic has sparked a rethink of how conventional trading is done. Even before Covid-19, closing the foreign-exchange market while shops were open and global summits powered ahead looked archaic. That impression has been amplified by crypto currencies such as Bitcoin, which trades throughout the week and can spike at weekends.
Yet hurdles remain before big institutions embrace trading throughout the week. Tight liquidity can distort prices, for example during the so-called witching hour between the U.S. close and Asian open, or early Monday mornings in Australia. Without a deep market, a trade of 100 million pounds ($127 million) could cause heightened volatility.
“In terms of natural FX liquidity we don’t have payment, settlements or clearing at exchanges at weekends, or cross-border trade or any corporate activity,” said Viraj Patel, a currency and macro strategist at artificial intelligence firm Arkera Inc. “It’s going to be difficult to see how you would get a lot of natural liquidity into this market without take up from portfolio managers.”
LMAX reckons it has cracked that problem. It already offers 24/7 trading in crypto currencies, and says it has traders and market makers standing ready to keep the funds flowing.
The platform, running from 5:05 p.m. New York time on Fridays to 5 p.m. on Sunday, will initially offer euro-dollar and dollar-yen trades, and won’t include hedging products such as risk reversals and volatility. The market will set the price and LMAX’s broker will act as credit counter party.
“During Monday-Friday trading, typically we’d always have $50 million a side available, refreshing instantaneously,” Mercer said. “It will be smaller to start with at weekends -- maybe $10 million to $20 million --but we expect those Monday-Friday levels to be reached by year-end.”
That’s a drop in the ocean for the $6.6 trillion-a-day global currency market.