Nearly a quarter of FX investors increased their use of algos during the Covid-19 crisis and an even bigger share, some 38%, say they plan to increase their use of algos as a result of their experience. The findings, which form part of the Greenwich Associates report, “Ad hoc responses to Covid shock will continue to shape FX market structure”, indicate that an increase in the use of algorithms to execute trades will be among the most important market changes triggered by the pandemic response. The increased use of algorithms could have a profound impact on how the FX market functions, says Ken Monahan, Senior Analyst for Greenwich Associates Market Structure and Technology. “This shift creates a new kind of pressure on the venues,” he adds. “While they don’t have direct control over the liquidity provision on their platforms, they can reduce fees, change or introduce new protocols and enhance system performance. This is what has happened in the equity world.”
The report also provided a new appreciation for the value of relationships and high-quality sell-side service and support. “The crisis demonstrated that, in extreme volatility, market participants need both relationships they can count on and effective alternative tools for sourcing liquidity and executing trades,” says Monahan.