Global FX average daily turnover was $6.6 trillion (with a T) in January 2020 compared to crypto’s $0.2 trillion. The FX market comprises banks, exchanges, OTC centralized matching, bilateral trading, retail brokers, and more. It is built for speed and volume but slow to evolve. At what point will crypto infrastructure eclipse that of FX? In this piece, I compare and contrast FX with crypto trading market structure.

Fragmentation of matching

There are those who would say the world will tend towards one efficient central pool of liquidity with the cheapest most liquid execution – they are wrong.


The Bank of International Settlements identified at least 75 venues for trading FX in 2019. Client profiling is the hallmark of FX trading. Imagine a multidimensional grid by client balance sheet size, volumes, average ticket size, frequency of trading, latency sensitivity, technical sophistication, and value of ancillary services such as research/financing/investors.

At each cross-section, there may be one or more venues that optimize for this client profile. For a large sophisticated high volume bank, they may prefer a high fixed cost interbank venue with relatively large $1 million minimum lot size such as EBS/Reuters. For a large but lower volume macro fund that values research/financing/investors, they may prefer the relationship-driven group chat model with a couple of banks.

For a smaller retail trader, they may prefer the convenience and low fixed cost but higher per trade commissions of an aggregated orderbook such as Saxo. Some venues offer very tight spreads but market makers may use aggressive last-look, the ability to reject an unprofitable trade after receiving the order within some period of time. Other venues may have wider prices but have only firm pricing with no last-look. Each of the market participants is optimizing for a different execution both at a broker and market maker level and each venue/market maker is catering to the client’s desires accordingly.


CoinMarketCap identifies over 200 venues that trade over $1B/day on 2-June-2020. Again, imagine a multidimensional grid but this time primarily defined by “trusted” volumes, geographical regulation/KYC, anonymity, custody of funds, and staking/lending. There’s some overlap with the FX market, but the primary needs of a crypto client are markedly different. The crypto client is focused more on fundamental or product-specific differences and less on execution quality. To be fair, there are some parts of the crypto landscape that are definitely becoming more commoditized on execution quality and this trend is likely to continue– bilateral OTC spot, borrow/lending, and perpetual swaps to name a few.

Layers of Intermediation

From end buyer to end seller, there are frequently multiple layers of intermediaries involved in FX. In crypto markets, there are usually not more than 1-2 intermediaries. FX markets are a top-down hierarchy driven by banks. Crypto markets are a bottom-up ecosystem driven by users.


FX markets have evolved slowly over decades from the top down. Banks control large end-user corporate flows driven by their corporate banking/mergers & acquisitions divisions, central bank execution, facilitate hedge fund investor flows via their prime brokerage division, and often the largest FX retail broker clearing as well.

This has resulted in a tiered hierarchy of access that enables maximum fees charged by a waterfall of intermediaries to each client depending on their profile. Subtle disruptions happen – such as one bank winning a prime broker or banking client from another bank. Sometimes significant disruptions happen – high-frequency trading firms have taken substantial market share from banks. But the system itself is very much an entrenched incumbent driven hierarchy that is slow to change.


Crypto markets have evolved from the bottom up. A retail trader can open an account directly with the largest and most liquid spot/perpetual swap venues. Their fees will be different based on volumes and as well as for ancillary services like borrow/lending, but they will nonetheless connect directly to the central matching of best liquidity with few intermediaries.

Crypto traders are able to move their coins and business with ease from one exchange to an incrementally better exchange. Incumbent crypto exchanges, thus, rise and fall with product innovation at equally incredible speed. This empowers crypto traders in a way that FX traders could only dream of.

Left hand, right hand

Many exchanges and market makers are leaders in both FX and crypto asset classes. The ones that adapt thrive, the ones that don’t tend to flounder.

LMAX Group is a market leader operating institutional FX exchanges (LMAX Exchange), a regulated broker (LMAX Global) and a crypto spot venue with LMAX Digital. The CME has liquid FX and crypto derivatives. Market makers and high-frequency trading firms such as Jump, Tower, DRW, and many others have both FX and crypto trading desks. While the asset classes may be quite different, many of these participants help to bring best practices knowledge of the traditional world to the new innovative crypto market.

For these market participants, crypto presents opportunities for several reasons. The volatility of crypto markets leads to higher arbitrage opportunities. Large retail participation provides a fertile ground for market making. And as a 24 hour 7 day/week asset class, crypto is simply more profitable for more time. It is for these reasons that crypto markets continue to attract old and new participants to claim their fortune.

It will be interesting to watch how these two markets evolve, crypto at the pace of a cheetah from the ground up led by users and FX at its usual pace of an elephant tightly controlled by incumbents. I expect soon many of the new best practices of the leaders in crypto to become the market standard in traditional assets as well. Anonymous yet trusted KYC, permissionless access to one’s assets, self custody, and others will permeate their way through both the centralized crypto market and the traditional market as a whole.

Source: FX trade execution: complex and highly fragmented


Kyle Davies Kyle Davies

Co-founder of Three Arrows Capital, nothing I tweet is financial advice, all opinions are my own, assets mentioned may be owned by Three Arrows Capital