A new report from Greenwich Associates has found that approximately 20% of institutional foreign exchange trading volume is now executed via algos, and FX is likely to move steadily in the direction of equity markets, in which “algos” account for more than half of trading volume.
“With all of the data available demonstrating the benefits and cost savings, the ability to execute a trade with an algo will soon become a ‘need’ as opposed to a ‘nice to have’,” says David Stryker, Principal with the Greenwich Associates Markets team and author of the report: The Evolution of FX Algos: From “Nice to Have” to “Need to Have”. With the push from regulators, as well as best execution committees and policies, traders are going to need to reduce costs while maintaining (or improving) the quality of the execution. Algos help with both, he states.
The report analysed how traders are employing algos, how fees impact their decision-making, and what steps institutions need to take to start using them. It also looked at the question of why algo use hasn’t grown even more rapidly in FX and identifies some of the key barriers to adoption. After assessing all these factors, Greenwich Associates projects that algorithmic trading will continue to proliferate in global FX markets.