Could 2026 be a watershed year for algorithmic FX trading?

To highlight the new direction that FX algo adoption is expected to take, Preston Mesick, Global Head of FX Algos at Barclays, shares details of recent developments that have been made to the core Barclays algo suite, all of which are product developments fuelled by customer feedback. He adds that the customisation concept can be applied in two ways, either by building a product just for a specific customer, or by extending the product to work for that customer and any other customers who want it. “We have taken that second approach,” says Mesick. “We are listening to our customers, making sure that we are innovating and pushing our product offering in the exact places that our customers need it.”

Focusing on the algo functionality space, Barclays has recently extended its flagship implementation shortfall algo, Gator Adapt, to NDFs. “Given that NDF markets are still a lot thinner than our than our developed deliverable counterparts, we had waited for some maturity there,” explains Mesick. “We found it with a combination of market data and customer demand. Liquidity driven algos in NDFs is a place where we can really help to push the market forward.” Barclays has also extended the functionality of its Gator Adapt and Gator Participate algos, which are liquidity driven algos – as opposed to prescriptive algos such as a twap, or opportunistic strategies like a float algo. 

Secondly on the NDF front, Barclays will be introducing the Barx PowerFill NDF for take profits and stop losses. Customers can now leave principal orders in those currency pairs, rather than just ‘click and dealing’. Barclays also recently released a new vwap algo, Mesick shares. “The vwap allows much more liquidity and proportional execution than just a pure, consistent execution through twap,” he adds. 

Maturing market with room for growth

The narrative of FX algo development overall is more evolutionary versus revolutionary, according to Mesick. Looking at the stages of growth, he believes that the market is now very much in the maturity phase of core algo functionality. While there are venues in the market that are still looking at new order types, new matching exercises or mechanisms, from the algo perspective Mesick says that the focus for Barclays is now more on making incremental changes in liquidity provision. “We’re looking at new venues as they arise,” he adds. “We’re also making sure that we have our quantitative machinery in place to validate and reshuffle liquidity as it comes up and be dynamic with that. The key is making sure that we are reacting appropriately as those changes occur, but not as a catalyst where a big change happens, but as smooth and incremental changes made over time.” 

In addition, there are still clients that are new to using algos, often because they do not yet know how to fit algos into their workflows, says Asif Razaq, Global Head of FX Automated Client Execution at BNP Paribas. There are also a number of clients which are using algos on an ad hoc basis, he adds, which can easily move from ad hoc to a more regular and then becoming more systematic in their usage over time. “We definitely believe there is more growth in this market,” Razaq says. “Much of this growth will be from the systematic hedge fund community, who traditionally used to write their own algos in house but who are now actively looking at migrating away from their in-house algos and using the bank algos as a mechanism to access the market.” 

Asia in focus

The corporate community is also currently one of the smallest community of algo users, but that corporate client segment is now is becoming more algo aware and are now asking questions around how they can use algos to execute their order, according to Razaq. He adds: “Existing clients that are using algos will also increase their market share of how they distribute their flow versus algo paths versus non algo paths.” Another trend is that while Asia tends to be the smaller market in terms of algo usage globally, there is a new generation of traders entering the market who are more comfortable using technology to execute their orders. Razaq explains that traditionally, the relationship between the buyside and the sales side has been based on voice relationships, yet the newer generation are far more open to exploring new technology solutions.

“We are seeing volumes significantly increase across the Asia region as more clients look to algos as a mechanism to trade, especially now as these algos are becoming especially good in managing illiquid currencies and illiquid time zones,” says Razaq. Further external factors that are encouraging the buyside to make the move to algos includes the ability to prove best execution, which in turn is fuelling the concept of algo wheels, he notes. “Algo wheels are a common concept in the world of equities. As the buyside are consolidating and more firms operate multi-asset execution desks, those with equity experience are now bringing the concept of algo wheels into FX,” Razaq explains. “They allow clients to distribute their flow across various algos, across various dealers, and then measure the performance in a quantitative way. This awards more flow to the bank algorithms that are performing well, but in turn, the wheels have a monitoring framework which is helping to proving best execution.”

Furthermore, having seen a recent market high watermark for algo volume during 2025, David Ketley, HSBC’s Head of Product, Execution and Trading, Global FX Services notes that the bank’s traditional client segments, including large corporates, asset managers, pension funds, hedge funds, are expected to be increasing their use of algos in 2026. “We see hedge funds and systematic trading firms increasing their use of our algos, specifically with regards to our FX floating principal order capability, which allows them to make liquidity with our principal FX desk algorithmically and on an anonymous basis,” he adds. “Regional banks are also directly using our algos or white labelling them for their own clients. And, with the electronification of the metals spot market, particularly in gold and the resulting increase in e-volumes that we have seen this year, we believe the trend for using our precious metals algo is upward.”

Balancing manual and algo execution

Ketley also believes that institutional clients and sophisticated corporate clients will increasingly make use of HSBC’s Basket Algo offering as a way to reduce costs and mitigate market risk, particularly as the bank deploys the Basket Algo for use on multi-dealer platforms. “With our global network, we have also added USDBRL this year to our list of NDFs supported by our algo suite of products,” he adds. 

Overall, Ketley highlights three significant factors driving demand for ongoing algo adoption into next year. Firstly, technology, where he notes that there is a strong correlation between innovation and algo usage. Secondly, liquidity fragmentation, as algos can offer an efficient solution for a more fragmented market, covering key trading venues for different types of FX products or currency pairs and splitting execution as appropriate. Then finally market conditions, where during periods of high volume and wider spreads, the use of algos can be more appealing to market participants.

“This is dependent on market conditions to some extent,” he adds. “There is a natural trend for some algo users to favour trading on a risk price when markets are volatile, but spreads are relatively tight.” According to Ketley, algo products should be viewed as part of a wider toolset available for clients to use according to their short-term and long-term execution objectives. “We would expect a natural tendency for algo usage to increase during the next year, as the algo market continues to mature. An increasing range of FX market participants are also adding algo execution to their toolkit.”

Development and adoption

In particular Ketley predicts to see more adoption from Asia participants next year as algos continue to gain popularity in the region. “Our Asia algo volume is on track to be up circa 100% this year,” he says. “Our precious metals algo has also been a key driver of growth in 2025 for Asia. We’ve also enjoyed a very strong pipeline in the Americas during 2025, particularly in the hedge fund sector, and we expect that momentum to continue into 2026.” 

Technological advancement and innovation are now permanent features of the algo market, Ketley continues. As multi-deal platforms develop the ability to stage multiple client orders simultaneously, he adds that HSBC sees this as the right time to expand the distribution of its Basket Algo, which is currently available on the bank’s single dealer platform, HSBC Evolve. “HSBC is one of a select few providers who offer a basket-style product,” adds Ketley. 

In addition, discussing customisation with clients has always been a key feature of HSBC’s algo offering. Ketley explains: “It is critical to have the right combination of default features for those clients who want to ‘plug and play’. For an increasing number of clients, however, that is just the start of the process. As their trade data sample grows, the rich real-time and post-trade analytics that we provide will facilitate discussions around execution objectives and lead to the appropriate customisations.” He shares that in 2026, HSBC is also planning to launch the ability for clients to define the nature of opportunistic algo behaviours via client-specific customisation.

Quality rises to the top

A further opportunity for growth next year lies in the increasing number of clients who are now looking at their algo performance more closely than they ever have in the past, according to Mesick. “For a long time, TCA was a check box exercise,” he adds. “Now clients are aiming to get more insights into how to best run the algo for their particular portfolio and are taking a far more scientific approach to figuring out where they want to show flow.” When looking at some of the more liquid pairs, algo wheels might make sense for some clients, yet Mesick warns that for clients who tend to be more idiosyncratic in their liquidity choices, they still prefer to make more fine-grained decisions. “These clients are more data driven when looking at where they want to send their order, not just who is next up in the wheel,” he adds. “We are doing the exact same thing in our innovation around algos, as well as our investment in incremental functionality.”

Looking ahead, leading algo providers such as Barclays will continue investing to make ensure the performance of systems is as robust as possible. Machine learning has also been part of e-trading since its founding, notes Mesick, while AI is still more of thought experiment, particularly in the case of algos. “It is still early days for AI and whether it will fundamentally change the customer experience when they need to execute algos.” Instead, Mesick argues that automation is still a major theme for a lot of customers. “In many ways, the execution is almost secondary to the workflow automation,” he adds. “This is a trend that is set to continue. We are obviously working with our customers on that, both on the execution side, but more broadly within FX and markets, on the various automation, workflow automation products that we offer.”

For Razaq, the true differentiating factor is now not so much about which new algorithms a provider brings to the market, or how well their algo performs, but much more focused on the toolsets that they can offer to algo clients. “It is much more about the complete package of the algo offering you make available to a client,” he says. “The qualitative measure is equally important as the quantitative measure.” While the algos still need to perform well, Razaq argues that at the same time clients need to assess the qualitative measures, such as a reliable platform that does not go down too often. “Providers need to offer toolsets where clients can run analysis, with pre trade or post trade, or even real time TCA, which is now in demand from most clients,” he says.

Standing out from the competition

“The other big growth area is engineering new ideas and new solutions,” Razaq continues. “We have built solutions where clients can trade FX, not only in the OTC landscape, but we also introduced hybrid execution with EFP trading, where algo clients can source liquidity from the OTC market, whilst settling the trade as an FX Future. Offering that level of innovation, that rich toolset that can access liquidity from multiple different paths, is going to be a key feature of the market.” Another key feature Razaq highlights for next year is cross asset algo execution where providers will offer strategies that can execute across multiple asset classes.. 

Clients are also becoming increasingly sophisticated in the way in which they evaluate algo performance, in order to not only demonstrate transparency and best execution to their own stakeholders but also to link directly into routing decisions, according to Ketley. He adds that venue and internalisation performance is an example of this, as is using third-party TCA providers to measure execution performance. “With increased transparency around algo performance measured against the execution objectives of a client, we expect to see a more focussed approach to the selection of strategies,” says Ketley. “Third-party pre-trade selection tools have certainly contributed to this and will continue to drive innovation in the space.”

Furthermore, Ketley believes the market will see an increase in the breadth of currency pairs covered by third-party TCA providers, in order for clients to benchmark their orders consistently. “NDF pairs are a common gap in this regard. We’d also welcome initiatives to ensure data accuracy and comparability, especially with the advent of pre-trade tools used by clients to make routing decisions,” he adds. “It is important to provide clients with transparency around the different methods an algo provider can use to pass internal liquidity to an algo order, and we are likely to see more industry competition around the use of different types of algos executing fills from internal inventories.”

Looking ahead to next year, Ketley notes that the ability for clients to make liquidity with HSBC’s FX principal desk using its algo suite, and having more sophisticated options available to them, such as the Basket Algo, rather than merely relying on standalone algo strategies, will prove to be a key differentiator. “A less conventional FX algo tool for occasional use, such as our percentage-of-volume algo, can also provide added value for clients and minimise market impact if it concerns a particularly large client trade,” he concludes.