Corporates get more strategic with FX Trading

June 2023 in Industry Reports

The results of a recent Coalition Greenwich survey show that corporate treasury departments are thinking more strategically about trading FX. Corporates also recognize the potential that improved data and analytics can have on their business, especially to help them understand and manage volatility.

The overarching focus on data, coupled with the belief that changes to the FX Global Code (FXGC) will impact market structure, could also drive an increased focus on new tools—specifically the use of algos and TCA. The FXGC have created new disclosures that should help corporates understand how algos behave and provide more confidence that they are being used correctly. While these more advanced tools have yet to penetrate corporates as deeply compared to asset managers, awareness and infrastructure could spur change says Coalition Greenwich.

The Coalition Greenwich data reveals that corporates do not yet consider algo use as part of their execution strategy, and only 16% believe that they effectively manage data for algo use. TCA is similar, as nearly half do not feel that they have the ability to create an effective TCA program due to data challenges.

Source: Coalition Greenwich 2022 Market Structure & Trading Technology Study

Despite the steadily increasing presence of algos in the FX industry, the research indicates that only 12% of corporates currently use them. Corporates, of course, understand the benefits, and like other participants, cite the importance of improved pricing and reduction of market impact. This is why certain corporates have begun to focus on algos and TCA.

Seventy percent of those corporates looking to implement more algo trading, for example, list it as their top FX priority. This usage will continue to grow as corporates not only start to realize the economic benefit from using this tool, but also as they build the data and infrastructure to support it.

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