Understanding algo liquidity vital for buy side

During a panel discussion at this year’s TradeTech FX US conference in Miami, industry leaders from Citadel Securities, XTX Markets, BNP Paribas and Jefferies all agreed that buy-side firms understand how algorithms work in the FX space, but need to put a greater emphasis on understanding the underlying liquidity behind the algos.

Understanding algo liquidity vital for buy side
Kevin Kimmel

During a panel discussion at this year’s TradeTech FX US conference in Miami, industry leaders from Citadel Securities, XTX Markets, BNP Paribas and Jefferies all agreed that buy-side firms understand how algorithms work in the FX space, but need to put a greater emphasis on understanding the underlying liquidity behind the algos. 

“The buy side has a firm grasp on how algorithms operate, but less of an understanding about the underlying liquidity. Moving forward, the buy side needs to understand the types of liquidity those algos are seeking, because aggressive liquidity seeking algos are very different from passive liquidity seeking algos,” said Kevin Kimmel, Global Head of eFX at Citadel SecuritiesK. “It’s a conversation between the buy-side and the banks; banks will be competing in the algo space and will have to differentiate themselves in terms of execution quality. As a liquidity provider, we want to be measured if we are confident in our quality of execution.” A poll of attendees backed this finding, with 80% believing that the liquidity the algorithm executes on is more important than the algo itself.