Buyside migration to FX algos continues to grow

Algorithmic trading of FX continues to grow amongst buyside firms. Algo-enabled hedge funds traded 53% of their FX volume using algorithms in 2013, and the overall figure for institutional algo usage is projected to grow by 64% year-on-year to end-2014. In a move partly attributable to their increasing use of FX algos, hedge funds have moved significant proportions of their volume to single-dealer platforms. Regulatory complexity is another significant driver for change...

Buyside migration to FX algos continues to grow

Algorithmic trading of FX continues to grow amongst buyside firms. Algo-enabled hedge funds traded 53% of their FX volume using algorithms in 2013, and the overall figure for institutional algo usage is projected to grow by 64% year-on-year to end-2014. In a move partly attributable to their increasing use of FX algos, hedge funds have moved significant proportions of their volume to single-dealer platforms. Regulatory complexity is another significant driver for change.

These are key findings of Greenwich Associates’ report FX Electronic Trading 2014: Global Trends and Competitive Analysis. The report found that top-tier dealers provided the majority of algorithmic tools used by the buyside. Significantly, 7% of respondents not already using FX algos by end-2013 expected that they would be using FX algos by end-2014.

Greenwich Associates’ report is based on interviews with 1,584 “top-tier, buy-side foreign-exchange users around the world”, of whom 56% represent financial firms and 42% represent corporates (2% “other”). Greenwich Associates’ criteria for inclusion in the survey include either reported trading volume above $10 billion or sales above $5 billion. Financial firms now trade 77% of their volume electronically, while corporates trade 58% online. Detecting little change in the competitive landscape for multi-dealer and single-dealer platforms “despite massive market structure changes”, Greenwich Associates conclude: “This signals both a mature market in which customers are satisfied with current offerings, and a market ripe for a shakeup amid major regulatory changes impacting investor behaviour and product selection.” More at www.greenwich.com.