UBS has made a number of significant enhancements to its hugely successful algo, UBS Float, both in how it works and the logic behind it. Christian Gressel, Head of FX Algo Trading, UBS explains how this will further help clients achieve the best outcomes using FX algo execution.
The UBS Float algo has always been a very successful strategy, but clients notably increased their usage of this passive FX algo throughout the volatile trading period in February, March and April. According to Gressel, this confirmation that even in these more turbulent market periods when spreads widen out, that the UBS Float algo works very well.
As a result, Gressel and his team dug a little further into the performance of the algo in those conditions and have since implemented a number of enhancements, with an improved logic around what levels they post and at what venue. “During that volatile period, we saw that the Float algo works very well and it’s given clients really good outcomes.
After a period of testing, we’ve also decided to further build on this success and, instead of only posting one child order at a time, in this revamp we’ve improved the posting logic of the algo in a way which enables us to post up to four child orders at the same time,” Gressel says.
Characteristics have changed
In addition, the characteristics have changed depending on which venue is used. Firstly, the tightest price is posted on ECNs using last look. Gressel explains: “However, in this case it is not the LP’s that are using last look to cancel on the client, but it is the user of that algo who can now cancel the child order and trade at a better level if there is an adverse selection against them.”
Secondly, UBS Float is now able to post a little bit bigger in terms of the size, but deeper in the stack on the primary venue. “The reason why we do it on the primary venue is because obviously there is the liquidity and the reason why we do it deeper in the stack is that we want to create passive fills where clients start earning the bid offer spread. So if there is big market volatility, then you’ll get the benefit of trading at those better levels,” Gressel adds.
Then the third and final change is the ability to post against an internal matching engine, which enables the UBS Float algo to post passively against the UBS ‘franchise flow’. UBS electronic principle trading has seen very strong recent success, notes Gressel.
This internal matching engine now allows the UBS Float algo to post at mid into that engine so when algo users want to hedge themselves in the markets, they will ping into that matching engine to see whether there is something in there that they can trade against, instead of going out to the markets. According to Gressel, this allows them to post bigger sizes into that venue.
“The benefit for clients in trading mid against the e-FX flow is that there is no footprint. Because it doesn’t leave UBS, it has a very low impact,” says Gressel. A further interesting aspect is how UBS Float can also open up the possibility of trading passively against the e-FX flow, which with UBS ORCA Direct is a much more aggressive order type. “With UBS Float, we’ve really tackled the other side of the spectrum. So if clients want to get passive fills, we’ve improved how we’re posting at all these different venues in a different style which opens up the ability to trade passively against the e-FX flow,” he concludes.