What are the key trends or changes in demand for access to execution algos and related tools, particularly those that have emerged in the past year?
Clients increasingly need the ability to execute larger trades by placing FX algo orders that minimise market impact by optimising execution quality, distributing the overall notional amount leveraging their providers’ blended liquidity pools and access to venues. The end result is an improved execution and reduced overall cost of execution. We have seen increased usage from both corporate and institutional clients with a variety of different trading styles and desired outcomes.
The demand for native forward algo execution is also growing, where the all-in price of the spot and the forward points are wrapped into the execution.
How has LSEG FX continued to support algo use as the market has evolved?
Our strategy is to support seamless and customizable integration into our clients’ upstream and downstream platforms, in order to facilitate algo execution via solicited order flow. The overall algo experience is enriched by allowing clients to pause or modify their inflight algo orders, and switch strategies in-flight to another order type such as RFQ or another liquidity provider via our order splitting capabilities. We have recently extended our FX algo offering to cover non-deliverable currencies as well.
Active traders looking for direct venue access to manage their risk through bank-agnostic, user-configured algos can leverage the LSEG FX Advanced Trade Execution liquidity aggregator available within the LSEG Workspace for FX Trading workflow tool.
Last year LSEG FX launched NDF algos on the platform. How has the client response been to the new offering and how is this likely to be enhanced going forward?
Extending our offering to cover NDF currencies has been driven by demand from our existing client base, and we have seen an instant pickup in traded volumes largely driven by LATAM and APAC pairs. Since its launch in Q3 of last year, NDF Algo trading on FXall has experienced impressive growth with a 300% increase in volume and trades H2 2023 to H1 2024. As of mid-August, NDF Algos are priced by 8 liquidity providers offering 42 NDF Algo strategies across 66 currency pairs with more coming in 2024.
Going forward, we are looking to implement enhanced logic for NDF algo providers on our platform, such as restricting currency pair selection on a per strategy basis depending on what the provider supports, for an improved user experience.
What do you offer to support the requirements of buyside algo users in particular?
In addition to the aforementioned features, LSEG FX also offers clients independent algo performance benchmarking through our Trade Performance Reporting (TPR). This allows algo execution outcomes to be measured against three benchmarks: Best, Worst, and TWAP to help our clients understand what their most performant strategies are across a number of criteria such as algo strategy, provider, and currency pair.
Furthermore, through our strategic partnership with Tradefeedr, we are integrating Tradefeedr’s market-leading, fully independent pre- and post-trade TCA solution, into LSEG Workspace. This makes it easier for traders to select their execution style and counterparty.
LSEG Workspace for FX trading
How has the demand for FX algo analytics and TCA grown among FX algo users and how does LSEG FX meet their requirements?
There has been a sharp increase in the provision of data and analytics for algo order performance and we have addressed this demand through our proprietary TPR service. Our open platform approach has allowed us to focus on forming strategic partnerships in this space, such as Tradefeedr, in addition to our ability to share algo fill data with third party providers such as BestX, Virtu, and others. We are also integrating LSEG FX’s algo suite and related functionality into LSEG Workspace, which will provide our clients with a customisable, one-stop shop for all their trading and execution needs.
FX algo users also demand independently verifiable sources. As the home of one of the deepest FX market data sources in the world, LSEG FX can independently benchmark algo performance. Couple that with our strategic partnership with Tradefeedr, and we have an innovative analytics solution, most notably for pre-trade data, which is already recognised by clients as one or our key differentiators.
Looking ahead, what changes in the market do you expect to have an impact on the evolution of the FX algo space?
We expect to see more banks offering native forward algo execution, as well as more enhanced, real-time TCA support to further enhance our clients’ FX algo usage. On the other hand, the question for multi-dealer platforms will be how to further develop their algo suite and whether there is a need for LSEG FX to develop an offering ourselves around certain algo types in the future as a truly independent alternative to bank algos. Bank algos tend to be more of a black box offering, whereas more sophisticated clients may prefer an algo strategy that is not linked to any market maker or provider of liquidity, in the same way they prefer independent TCA currently.
Active buy-side traders looking for more control over their algo executions can leverage the LSEG FX Advanced Trade Execution liquidity aggregator today. Adoption of these tools relies on the appropriate market expertise in understanding the dynamics of different liquidity pools and how to optimize one’s liquidity blend. Increased adoption of trade analytics, and a better understanding of liquidity will ultimately drive adoption in the future.
