Using technology it developed in equity markets, Bloomberg Tradebook has introduced a circuit breaker algo to ensure clients using its FX ECN aren’t trading against phantom liquidity in aberrant markets. “This year we have seen periods of very high, then very low volatility in the FX markets,” says Tom Murphy global head of derivatives sales at Bloomberg Tradebook. “For example, in January when the value of the CHF doubled inside of two minutes then went back down, or more recently when the NZD/JPY pair dropped 10% inside of two minutes our circuit breakers were activated so our clients couldn’t trade in those circumstances.”
“We want to ensure our clients aren’t chasing liquidity that is very aberrant,” Murphy continues. “Circuit breakers are price based, so whether it’s an event or an algo gone wild, the circuit breaker will take effect.” Bloomberg Tradebook has also refined its TWAP algo for FX. Its so-called “TWAP 2.0” – as yet to be branded – helps traders determine the optimal time to trade a particular currency pair, which can have different liquidity profiles based on time of day. Tradebook leverages the data and analytics on the Bloomberg terminal to analyze the client’s total volume and time interval versus an estimate of remaining volume over that time interval. “For example, we might recommend that a trader in USB/RUB narrow his time window to 9AM to 12PM ET because after 12 noon liquidity in this pair typically drops off significantly,” concludes Murphy.