There is a real possibility that London could lose its place as the leader of the FX world, and many other cities are coming for that crown.
This article will look at the reasons why London is seen as the global FX capital, why there is a chance this title could be lost in the near future, and which cities are most likely to be in the running for the spot at the top.
Why is London a key location for FX trading?
London has long-held the spot as the most significant global hub for FX trading due to a combination of historical, geographical, economic, and regulatory factors.
Below are some of the key reasons for London’s prominence in the FX trading industry:
Historical factors
London has been a financial superpower for as long as time, and it was a key reason why Great Britain was able to conquer much of the known world.
There are systems and regulations in place that can’t be replicated elsewhere overnight, meaning that London has a distinct home-field advantage compared to smaller cities modernising their current infrastructure.
Deep pool of financial talent
Because London is so well-known for its economic power, many young people are keen to enter the world of trading, which leads to a large pool of talented financial professionals wanting to begin trading forex, including traders, analysts, economists, and researchers.
This skilled and varied workforce can help companies scale their businesses, allowing for further growth and better profits.
Time zone advantage
London is also located in a great spot between the two other major FX markets.
When the Asian market is approaching the end of the day, the North American market is slowly waking up, allowing traders to transition from one to the other seamlessly.
London can capitalise on this by attracting the best and brightest traders to the city to conduct their business, enabling further growth.
Could London lose its FX crown?
Several factors could contribute to London losing its top spot as an FX trading hub.
The UK’s decision to leave the European Union was a potential nail in the coffin for those wanting to capitalise on London’s separate but connected relationship with mainland Europe.
This led to many institutions relocating their businesses to cities like Paris and Frankfurt, allowing them to easily trade with the rest of the European market without jumping through bureaucratic hoops at every stage.
The rise of digital technology has resulted in many traders being able to conduct their business irrespective of location and do so online.
This doesn’t necessarily hurt London and benefit anywhere else but could become a factor when considering the expensive living costs often associated with London compared to other major cities in Europe and beyond.
While other European cities could come for London’s crown, many lack the infrastructure London has.
Where could the next FX capital be?
London may still be the top dog in the FX trading world, but things could change.
Many other countries have increased their prominence in the FX world, establishing themselves as serious players, including:
New York, USA
New York is already a key financial hub for much of the world, and it could soon set its sights on overtaking London to become the go-to place for the FX world.
Situated between the European and Asian markets, New York is in the perfect spot to accommodate trade between the two, largely thanks to the two trading windows overlapping in New York, which is a huge benefit.
Singapore
Singapore has been a serious player in the financial world for decades, thanks to innovative government policies and relatively lax regulations, offering a friendly environment to companies wanting to enter the trading world.
The advanced infrastructure is a key attraction for many, offering a refreshing change to the sometimes-dated technology still used elsewhere.
Hong Kong
We all know that Hong Kong is a key player in the financial world.
However, its ability to increase prominence will likely depend on its volatile relationship with China, which has a valid and growing claim to the former British colony.
While this relationship offers strong access to Chinese markets, China’s Xi-led government has yet to embrace the globalist nature of FX trading fully.
Zurich, Switzerland
Switzerland has been a critical player in the financial world for centuries, best known for its vast array of banks and financial institutions.
This naturally lends Zurich to the FX world, with the two having a close connection that could grow further.
Frankfurt, Germany
Frankfurt is already seen as the financial hub for Germany and Europe as a whole, home to the European Central Bank and countless other global institutions.
While it is yet to have the same level of influence as London or New York, Frankfurt has enormous growth potential and the European Union could exacerbate this should they decide to back FX trading.
Conclusion
While it might be too early to tell whether London will lose its crown as the centre of the FX trading world, it now feels like a matter of when and not if due to the numerous factors discussed above.
London could prevent this by investing in modern infrastructure and putting various measures in place to prove to the world that they should continue to trade in this historic city.
The future is unclear, so this is one that we’ll have to watch very closely.
