OpenFX Releases “The FX Iceberg” A Report That Explores The Anatomy of Cross-Border Liquidity

What is liquidity?

Most simply, it is whether there is enough of asset X to complete trade Y.

In most markets, that definition will get you where you want to go, but in cross-border FX, it can be deeply misleading.

Let’s say I want to move $25M between USD and COP. There are plenty of dollars available in the United States, and plenty of pesos available in Colombia. It seems reasonable that I should be able to get a price.

And I probably can, but whether that is a price I'm willing to pay isn't clear.

Can my provider complete that same trade tomorrow? Next week? Will all these conversions settle when I expect them to?

Will the converted COP actually reach my supplier in Colombia?

Simple asset availability does not neatly answer any of these questions.

There is a massive gulf between how much currency you have available in a particular corridor, and whether it exists in a configuration that makes the FX market surrounding it functional.

Our latest report, “The FX Iceberg: Understanding Cross-Border Liquidity,” is designed to bridge that span.

Liquidity has to do something

Money can exist without being particularly useful.

A cross-border FX payment, whether through traditional or stablecoin rails, is a multi-step process that involves a huge number of moving parts. Failure at any of these steps can result in slower settlements, higher prices, or an entirely frozen corridor.

The ability to complete a transaction might depend on the:

• Size of the transaction

• Timing of the transaction

• Regulatory changes in the market

• Compliance failures

• Licensing or banking challenges

Along with a host of other factors.

A provider might have access to a currency but struggle to source enough of it to support a large clip size; they may offer several “independent” quotes that actually reflect the same underlying liquidity. A transfer may fail at compliance, or lack a suitable institution to off-ramp into.

Liquidity has to do something. So the question we really care about is whether a transaction can be completed end-to-end, reliably, at the expected price and at the scale the client needs.

How well you can do all this determines whether the liquidity you offer has depth and quality.

The FX Iceberg

This is a report about FX quality, one that we have broken into three major sections:

• The anatomy of an FX transfer

• How to measure the quality of liquidity

• The FX Iceberg

The Iceberg is the model we use to understand how money moves through the FX market, and the infrastructure required to ensure that money finds its way to the customer.

It's designed to show the reader how the processes and infrastructure that support an FX payment interlock, and how failures at any point can cascade, reducing liquidity quality and making markets more dysfunctional.

The report is available for free here. You can find our other quarterly explorations here.