Growing use of Algorithms in FX Trading

The adoption of algorithmic trading in the FX market is rising due to increasing electronification of FX trading, says Arin Ray, Analyst for Celent’s Securities & Investments practice. Not only is the number of buy-side firms engaged in algorithmic FX trading rising, said Ray, but these firms are also using algorithms to trade in more volume than they did in the past. Hedge funds, asset managers, prop traders and retail aggregators are the main participants in this market.

Growing use of Algorithms in FX Trading

The adoption of algorithmic trading in the FX market is rising due to increasing electronification of FX trading, says Arin Ray, Analyst for Celent’s Securities & Investments practice. Not only is the number of buy-side firms engaged in algorithmic FX trading rising, said Ray, but these firms are also using algorithms to trade in more volume than they did in the past. Hedge funds, asset managers, prop traders and retail aggregators are the main participants in this market.

Celent, who have recently published a report entitled: FX Trading Platforms: Models Converge and Competition Heats Up, have noted that continuous evolution of the FX market has resulted in shrinkage of the inter-dealer market, as well as blurring of segmentation among single and multi-dealer platforms. The resulting market fragmentation, aided by growing electronification and lower costs, is making the marketplace ripe for the fast adoption of algorithmic trading. Buy-side players, through superior algorithms and connectivity tools at their disposal, can now engage with a number of participants, including other buy-side firms, to execute their trades. Recent controversies in the FX market are likely to push more volumes to electronic trading furthering this trend. There is now great pressure on existing platform providers to invest in technology supporting low latency, algorithmic functions and co-location capabilities to stay competitive in this evolving market.