The momentum behind cloud in financial services is building, and quickly. With big names such as IBM moving into the space, it signals that this is the future of financial markets infrastructure. Looking specifically at FX, there are many reasons to believe that firms are shifting towards this technology as a central component of their technology stack.
Integral was an early adopter in cloud technology and has been preaching its virtues for well over a decade. We knew that the adoption of trading and workflow systems using Software-as-a-Service (SaaS) could yield material benefits for FX market participants. Yet the results of our recent FX trading technology report caused great excitement, underscoring just how pivotal cloud is set to become in the industry.
It’s clear from the findings that while only a tiny proportion currently have all heir FX trading workflows in the cloud, a shift is imminent. Over a quarter (28%) expect their FX trading workflow to be entirely cloud-based in the next five years, and an additional 41% of respondents expect a hybrid arrangement within five years. This means that by 2026, a compelling 69% of the heads of FX trading and senior FX managers we surveyed expect their trading workflows to use cloud technology — forming well over a supermajority.
It’s easy to see why so many view SaaS as a strategic next step for their business. In Deloitte’s ‘Bank of 2030: Transform Boldly’ report series, cloud is recognized for helping retail and wholesale banks drive innovation and reduce infrastructure costs, as well as support improved business performance and shareholder returns. The cost-benefits are well known, and the potential to reduce cost of ownership has drawn the attention of nearly every business – not just in financial services – operating remotely the past 12 months. However, the accelerated movement toward SaaS in FX has other benefits beyond concerns over a company’s bottom line.
From a macro perspective, cloud can act as a democratizing force for firms operating across the spectrum of FX and capital markets globally. Why? Because it is synonymous with agility and flexibility. The lower costs, coupled with high-quality technology provided by specialist private and hybrid technology partners, enables regional and national institutions to compete and win on a global scale. Each institution, no matter their size, ends up with access to top-tier technology that easily accommodates workflows to meet unique business requirements, while also maintaining rigorous standards to meet technology needs in a timely and efficient manner.
Digging deeper into the operational benefits, in today’s hyper-competitive environment where low latency is critical, connectivity and software hosted on private cloud has already proven its value to countless participants. Hosting in key data centers close to liquidity providers and having the appropriate hardware and network stack are both important for achieving low latency – and are perfectly accommodated by a single-tenant environment. For less time dependent workflows, such as post-trade analytics, public cloud is sufficient and has the same cost benefits, but private and hybrid set ups can enhance liquidity sourcing, price discovery, risk management and pre-trade analytics.
Judging from our report the future is cloud-based, and for good reason. Looking ahead, expect to see more developments on cloud, not just from public cloud providers but from hybrid and private cloud vendors also. It will be with these technology providers that FX market participants can gain the edge, modernizing and growing their business along the way.