Currency trading is one of the lucrative areas that used to generate profits for banks but those profits have now been eroded by electronic trading and a plethora of new platforms.
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Last quarter, banks across the industry reported sharp drops in revenues from currency trading.
Banks are scrambling to develop trading platforms of their own. In the meantime, they are offering better terms to customers to keep the business going.
Equity trading became electronic in the late 1990s. That led to a surge in trading volume but trimmed profits on each trade.
Banks subsequently trimmed their stock trading and sales forces to focus on devising trading strategies with clients.
The largest narrowing of spreads in currency trading has occurred in the foreign-exchange markets because of increased competition.
Larger banks have been able to increase their trading volumes to make up for the narrowing profits. Smaller banks are focusing on building strategic partnerships
with important customers and positioning themselves as a trusted advisor over the long term.