The share of won-dollar trades executed automatically through electronic order systems in South Korea's spot foreign exchange market has topped 10% for the first time.
Average daily won-dollar trading via dedicated application programming interface (API) lines on the Seoul foreign exchange market, which comprises Seoul Money Brokerage Services and Korea Money Brokerage Corporation, reached about $1.5 billion last year, according to Bank of Korea data submitted on the 6th to the office of Rep. Kim Nam-jun of the Democratic Party of Korea. That is more than 21 times the $70 million recorded in 2022. API trading accounted for 10.1% of all spot transactions last year, up from 0.8% over the same period, crossing the 10% threshold for the first time.
The share of traditional trading, in which foreign exchange dealers confirm quotes by phone and enter orders themselves, fell to 89.9% last year, or $13.33 billion a day, from 99.2% in 2022, when it averaged $8.97 billion a day.
An API connects a client or financial institution's system directly to a trading platform to transmit orders. Using an API, a system can place orders and execute trades automatically when price conditions are met.
The government introduced measures to promote API trading in 2021 as part of an effort to upgrade the country's foreign exchange infrastructure. The aim was to move away from a system in which corporate clients and other customers placed orders by phone with banks or dealers, and instead build a structure allowing them to monitor won-dollar spot market information in real time and trade through electronic order systems.
Supporters say API trading can boost volume and liquidity in the spot market because orders can be executed in response to price moves faster than a person can enter them manually.
Some analysts, however, warn that when prices shift in offshore markets, API-driven trades react faster than manual orders and can amplify exchange rate volatility over short periods. A rise in API orders could also increase the number of trading errors.
"Managing errors that come with the expansion of automated trading is emerging as a new challenge for banks," a foreign exchange market official said.
