For the most part of this millennium, buy-side firms have been looking to take more control of their trading processes, from direct market access to the use of execution algorithms, firstly in equities but now ….
FX traders at buy side institutions have embraced algorithmic execution in increasing numbers over the past few years. In part, their decision to use this execution style has been driven by a concerted sales effort that promises tighter execution spreads
There has been a marked uptick in the use of TCA (Transaction Cost Analysis) services within the FX market over the last few years. Doubtless significantly inspired by the FX Global Code and MiFID II, the use of TCA in FX has been suggested in some quarters to be a box-ticking exercise (although this charge is similarly levelled at TCA in other asset classes too).
Our consistent – and stubborn position at Cürex – is that TCA is only as good as the data and benchmarks used in the assessment exercise.
FX algorithms have improved considerably over the past few years. We’ve gone from the tired and parochial offering of the TWAP/VWAP variants to an era of smart algos, which can replicate complex trading strategies, switch between passive and aggressive modes of execution, optimally route orders, and react to changing market conditions.
Transaction Cost Analysis (TCA) can at times be considered “more art than science”; that is largely because the complex dynamics driving shortfall are often too difficult to demonstrate through isolated metrics, tables of segmented data or individual charts. Over the years, execution brokers and independent TCA providers have developed sophisticated visualisation tools to bring patterns to life, help understand the multiple drivers of cost, and focus traders on data points and patterns that matter.
It is no secret that algo trading in FX is increasing. After steady but somewhat modest growth for a number of years, the last year in particular has seen a faster uptake in usage. This has been prompted by a number of factors, with MiFID II’s increased focus on best execution in particular prompting many to reach for algo strategies as a way to evidence execution quality. While algos can indeed provide a wide variety of benefits, it is important to be thoughtful about their implementation and usage.
As FX market participants deal with the evolving market structure and prepare for the implementation of MiFID II, there is growing demand for more sophisticated trade analytics to improve decision-making in real-time. Joel Clark investigates.
Use of FX algorithms among the general corporate treasury community may still be in its relative nascency, yet their use among very large corporates continues to grow. But with more firms seeking ways to optimise their FX trading performance, can execution algos really becoming an indispensable tool across the board for this important buyside sector? Nicola Tavendale investigates.
