Trends in FX

The 2009 edition of FXAll's "Best Practice in Foreign Exchange Markets" has some great commentary on what has happened to the FX market in last 9 months: reduced volumes, increased volatility, return to high-touch client relationships, and the lack of liquidity in the forward market (see Page 12). Key point: forward trades (swaps,outrights) are essentially loans and hence need to be modeled/priced as such (think: counterparty/settlement risk from a credit perspective).