Programming note: As a reminder, paid subscribers now have access to my new podcast, Net Interest Extra. In the next episode, I’m joined by James Aitken, one of the industry’s foremost macro-strategists, to discuss what’s going on in Washington DC and more.

One of my oldest friends used to be a foreign exchange trader. A year before I started work in equity research, he took a job on the dealing floor at Barclays in London. I visited him there once; the pace was intense. For ten hours a day, he’d process prices blasted at him from all sides to form a picture of the market. Salespeople would shout client orders and he’d have to decide what to quote them and how to manage his inventory. Even then, over a trillion dollars of volume flowed through global currency markets every day, with London at the center. The stakes were high.

My friend joined just when electronic broking was beginning to take off. Although traders had terminals that allowed them to communicate with dealers at different firms, functionality didn’t go much beyond chat. Most price discovery still came from voice brokers whose job it was to intermediate between traders (and treat them to fun nights out). In April 1992, Reuters launched Dealing 2000-2, the first electronic broking system capable of automatically matching buy and sell quotes from anonymous (but pre-screened) dealers. A consortium of banks followed up with their own system, EBS, in September 1993.

Old-school traders didn’t like it – they called it “the toy”. One such trader was my friend’s colleague Richard Hill, who became momentarily famous after appearing in a BBC documentary about foreign exchange trading in the mid 1980s. The show follows the exploits of three traders as they navigate the market over a single day: June 4, 1985. Here’s how the narrator introduces Hill:

It’s 6:30, a time when no traditional City gent would be seen dead arriving at work. But Richard Hill is no traditionalist. More of a financial athlete than an economics scholar, he started right at the bottom in Barclays Bank but at the age of 31, he already earns more than most of their high street managers. Hill likes to arrive early to be ahead of the game. His life centers around this huge dealing room. Barclays might have a staid high street image but when it comes to currency dealing, Richard’s up there with the gamblers and the bank loves him for it. As Barclays’ sterling dealer, he’s in the hot seat on the circular currency dealing desk surrounded by the dealers of the other currencies… Working with tiny margins on hundreds of millions, these eight young men squeeze every penny they can out of the market. Last year, Barclays Bank made over £100 million profit just from foreign currency dealing.

By the end of that June day, the documentary reveals, Hill had traded £750 million and made just under £100,000 for the bank, all while the pound moved only two cents. It was the kind of performance that exemplified the era’s trading floor culture.

Today, Barclays makes a lot more than £100 million from foreign exchange dealing. Indeed, driven by President Trump’s pledges to shake up global trade, the overall foreign exchange market is booming. According to data from exchange operator CME Group, January was the busiest month for currency options trading since February 2020, with daily volumes 75% higher than early last year. One firm reports daily trading volumes double their 2024 levels.

But the structure of the market is entirely different. Hill has gone; my friend has gone; the machines have taken over. It’s a transition that’s worth exploring. While innovation occurs in every financial market, the FX market is often at the forefront since its robust liquidity environment makes it a ripe testing ground for modernization. To dig into how it has changed over the years, and what we can learn from that with regard to other markets, read on...