Developing access to FX algos has been a significant project for FXSpotStream in recent years, involving notable upfront effort in coding to every liquidity provider on the platform. With this infrastructure and connectivity now built, the service is able to offer both existing and new customers with an efficient, cost-effective way to give algos a try, says Ward.
The platform now enables customers to access up to 70 bank algo strategies, he adds. “That up-front investment is now beginning to pay off,” Ward says. “We have been seeing greater adoption, with a 45 to 50% increase in the number of counterparties or customers that are using algos on the service over the past 12 months. We have seen significant growth in both algo use from new customers on the service and we have seen greater adoption across our existing customers, with our volume growth driven by those two factors.”
Rising adoption
Year on year ADV has increase 127% in algos specifically year-to-date, making algos the fastest growing ‘other products’ segment after NDFs on the platform, which has also seen a notable 75% increase.
Algos recorded back-to-back record ADV months for September and October, following the record ADV’s reported for April. Monthly ADV for October in other products – swaps, NDFs and algos – reached nearly USD 43.8 billion. In addition to record growth in FX spot, the service has also a 40% rise in demand of FX swaps year-on-year.
In addition to recent volatility events and macro shifts in the interest rate environment, market liquidity has also been relatively robust this year. Ward adds: “As a fully disclosed relationship-based trading platform, liquidity provision is very bespoke and customised to the customer by the LPs, but our volumes and market share are very much trending in the right direction.”
Ecosystem evolution
FXSpotStream’s largest customer segments continue to be banks, regional banks, systematic hedge funds and institutional brokers, as well as retail aggregator services in Tokyo in particular. “Our customers see market access, market impact, low latency times and information leakage as highly critical items,” Ward notes. “The bilateral trading environment where only you and your LP or LPs are aware of that trading activity is one of the key drivers behind the growth in direct trading in the past five or six years. Other models have a time and a place for different customers, such as ECNs or primary marketplace central mid order books, but direct trading has really outgrown all those other segments.”
In particular, the systematic hedge fund segment has been a key focus of growth and strength for the platform, according to Ward, especially the multi-manager, large, global, systematic hedge fund firms. “They have been a driver of growth in the FX markets broadly, but they have also been a key segment behind our growth in recent years. As banks begin to move away from dedicated workstations on their desk to aggregators via API, this has been another key driver for us and our core offering.”
Low-cost access
Investing in connectivity to banks and their full suites of algos has also allowed hedge funds, systematic hedge funds as well as regional banks to very easily, quickly and at low cost give bank algos a try, Ward adds. “The ability for them to do that on FXSpotStream at very low cost, low time to market, makes it very easy to try algo execution,” he says. The addition of new LPs to the service has also included large algo providers such as Deutsche Bank, NatWest and Bank of New York.
