The use of hybrid algorithms that combine single-stream and multi-stream strategies is on the rise and accounted for 55% of FX algo adoption in 2014, according to research by Aite Group. Single-stream algos, which Aite estimates accounted for just 15% of adoption last year, typically draw liquidity from a single source, while multi-stream algos facilitate access to multiple sources of liquidity.
“The spread is generally tighter on the single-stream algos, but this is at the expense of a single bank seeing the intentions of customers. It was a logical starting point for the FX market, but gradually we see firms migrating to multi-stream algos and hybrids, which offer greater flexibility to suit different strategies,” says Javier Paz, senior analyst at Aite Group.
The findings were part of Aite’s global FX market update, published in December 2014. The report estimated adoption of execution algorithms at just over 20% of the spot market last year, with an increasingly diversified user base, including corporates as well as asset managers and hedge funds.
“Algo adoption is growing faster in some sectors and regions than others, but there has been a general trend upwards and we expect that to continue,” says Paz