Trading in foreign currencies can have slim margins but bulk trading makes up for it and can be quite profitable.
Daily forex trades are currently valued at $6.6 trillion a day. So it is surprising that Citigroup one of the biggest banks involved in the FX industry, is planning to pull back and scale down its involvement in forex.
Citi has announced that it plans to cut down the number of FX which it connects to by two-thirds. This reduction will happen in the first quarter of the next year.
Though this move does scale down the bank’s presence in the FX market, it is also a pretty smart move.
When Citi pulls back from its multiple platforms, it doesn’t need to pay commissions and fees anymore. This could potentially save the bank millions of dollars on a yearly basis.
The move could also mean that Citi wants to take back control of its forex dealings. In the past, banks jumped on any opportunity to partner with various third-party platforms to capture as much of the FX market as possible. However, with the competition looking to provide zero-fee transactions, some banks feel that they are the ones who are paying up.
Citi aims to cut down its FX platforms from 25 to 15. To determine which platforms it will continue to stay with, the bank has decided to send a survey to all its current platforms. The plan is to determine which of the platforms score best on the list of specified metrics and those are the platforms that will make the cut.
Other Banks Might Follow
Right now, big banks have their own forex systems which allow them to do their own forex trading with the prices they generate. But forex traders are always on the lookout for a good deal so they often turn to platforms that have multiple forex prices and try to get the best deal. Some of these platforms are successful in drawing in customers while other do not have much success. Citi is hoping to determine which platforms are the best and will only work with them going forward.
Experts say that Citi can save up to $10 million a year by reducing the number of FX platforms it supports. Citi is currently the only bank taking this approach in the market. However, there is a growing view among banks that smaller platforms are not worth the effort and other banks could soon follow Citi’s lead.