What algorithmic FX trading products and services does Pragma offer and who are you providing these for?
Pragma offers a fully hosted, algorithmic trading solution for Spot FX and NDFs that allows both banks and hedge funds to reap the benefits of an in-house build, while outsourcing the maintenance and development to a specialist. The Pragma360 FX solution includes a full suite of high performing execution algorithms, integration with the client’s own unique access to liquidity, as well as real-time and post trade TCA tools.
Why are increasing numbers of firms looking to outsource their algorithmic FX trading requirements?
Building a robust algorithmic trading platform suitable for the world’s largest asset managers and corporations requires a highly skilled development team, quantitative and market structure expertise and an expensive infrastructure to support the required high-performing software and network connectivity.
As such an in-house built system requires a lot of time, people, and money. As resources and margins continue to shrink inside both banks and funds alike, the need to scale and leverage third parties to reduce overhead and improve margins continues to grow. Outsourcing algorithmic trading technology allows the firm to reduce their time, personnel, and financial investment, while still maintaining many benefits of an in-house build.
What are the benefits of outsourcing to a leading quantitative trading specialist like Pragma?
The main benefits of outsourcing to Pragma are the abilities to maintain transparency, flexibility, and control, at the same level of building in-house, even relative to the largest global banks, while allowing clients to significantly reduce the time and money it costs to build and maintain an in-house platform, allowing the client to allocate resources to other parts of the firm where outsourcing may not be an option.
How do your outsourcing arrangements work and what level of customization can you offer for clients?
Pragma provides an algorithmic trading platform that enables its clients to create a unique algorithmic trading suite for their internal traders and external clients. For example,. Pragma can create a fully customized FIX specification, with unique order parameters and algo names. Clients can also customize how the algos leverage each clients own unique liquidity pool in a variety of ways such as by trader, currency pair, or algo in order to optimize the client’s execution preferences. For some algorithmic strategies Pragma provides over 140 different flexible parameters!
Are you able to integrate with the liquidity pools of clients and how much demand is there for this?
One of the key features and benefits of the Pragma360 platform is the ability to connect to each client’s own liquidity pools. Pragma will connect to the client’s aggregator, whether a third party or in-house solution which allows the platform to consume market data from each liquidity pool the client wishes to access.
The benefit is that the client’s customized algos will also access their curated, unique pool of liquidity all under the client’s name (since Pragma is a vendor).
Pragma360 also supports the curation of a unique liquidity pool for their institutional clients that may be different from the pool for internal traders. Pragma recommends connecting to a variety of banks, non-bank and ECN liquidity.
Pragma can turn off and on different liquidity pools based on different criteria to satisfy the client’s objectives which allows the client to truly reap the benefit of their own algorithmic solution. This also allows the client to control and manage relationships with liquidity providers, which generally results in tighter spreads and better performance.
What level of customer support do you provide to your clients?
Pragma provides real-time, first level support to its clients 24 hours a day, 5.5 days a week. The Pragma Trade Desk has a team of 6 execution consultants that are available via Bloomberg IB chat, phone and e-mail. The TradeDesk is fully equipped to answer questions on algo behavior and make configuration changes on behalf of the client.
The Pragma TradeDesk will also advise on market structure along with liquidity sources and order types. Having access to Pragma’s first level support allows the client to more easily provide quality and timely support to its traders and institutional clients. The Pragma team will deliver new features to each client several times per year and work hand in hand with the client to make configurations and customizations on a request-by-request basis.
What additional tools do you offer to support your execution algos?
Pragma offers a comprehensive suite of real-time and post trade transaction cost and venue analysis tools as part of the Pragma360 platform. The marquee tool is Panorama, our Algorithmic Management System. Leveraging Panorama, the Pragma TradeDesk monitors all Pragma client orders in order to provide a high level of consultation and support for clients.
Pragma also provides Panorama to its clients so that they have full transparency into both the parent and its corresponding child orders, allowing them to interact with their clients’ orders on the fly, and provide real-time performance and venue analytics to their clients. Complementing this tool suite, Pragma also provides TradeReports a post trade TCA portal. Moreover, Pragma provides data files supporting interaction with third party TCA providers.
We are now seeing next generation technologies like AI and ML making their presence felt in algorithmic FX trading. In what ways are you leveraging them yourselves?
Pragma has for a number of years leveraged advanced machine learning in its execution algorithms. Led by Pragma CEO, David Mechner, who has a background in neuroscience, Pragma kicked off a research initiative in 2017 called “Project Mercury.” Mercury leverages deep learning techniques to optimize routing within the algorithmic logic. Specifically, Mercury employs a signals-based approach to determine the optimal time to either post or cross the spread.
Pragma runs A/B experimentation with client flow to analyze improvements in performance. Pragma has consistently seen performance improvements from the deep learning techniques. Pragma is also often “horse-raced” vs other algo providers by their clients and consistently comes out at the top of the performance pool.
Your FX business model does not conflict with your clients. Why is it so important to create a more sustainable, value-added and long-term partnership with them?
It has been very important, particularly to bank clients, that their technology provider is independent and does not pose any conflict of interest with their FX franchises. Pragma not conducting prop trading should make the client feel comfortable that Pragma will not use the client’s data for Pragma’s benefit.
Having the un-conflicted partnership allows the teams to share ideas and information freely, allowing Pragma to have long-standing relationships with each client as their business continues to grow.
In what ways do you think the algorithmic FX trading market is likely to evolve which may further strengthen the outsourcing proposition for many participants?
The FX market will continue to become more complex as dealers offer more trading services, venues enhance their offerings and clients continue to demand innovative solutions to finding liquidity and reducing market impact.
Pragma also sees additional products becoming more suited for algorithmic trading such as NDFs and swaps. As demand for algorithmic trading for these more complex products grows, the demand for outsourcing will naturally grow as the barriers to entry to have an institutional grade algorithmic trading service will be too high and expensive for many banks and hedge funds to build and maintain their own trading solutions internally.
