The Finance Hive, in partnership with 360T, hosted a group of senior figures from the Canadian buy-side community at the latest in a series of Head Trader Dinner events held in Toronto. As part of the event, the attendees held an in-depth roundtable discussion touching on some of the biggest themes and topics which this community is focused on today. To help spark the conversation, the buy-side representatives were presented with five different questions, asked to vote on them in a binary yes/no manner and then invited to explore the different answers given. The first question was: Do you believe that FX algos are the ideal solution for executing Spot FX trades over $20million in notional size in the liquid currencies?
Some participants didn’t dispute the efficacy or value of using algos to execute FX trades, but suggested that a threshold of $20m was too low. One person pointed out that the purpose of using an algo is to avoid paying spread, but that the spread they pay for a $20m Spot trade in liquid currencies is so small that they couldn’t justify paying to use an algo for it instead. Another person agreed, adding that using an algo involves taking risk, but with a risk transfer they would still pay almost no fee but would also avoid having to take on any risk themselves. However, it was agreed that if the threshold was $40m notional or higher then it might make more sense to consider using an FX algo. On the flipside to this, another attendee indicated that they would use an FX algo for this type of trade because they can help buy-side firms to capture spread and automate their workflows.
The conversation then turned to the FX algos available to buy-side firms today. One person observed that there is a high degree of disparity between the different FX algos available in the market today. Another concurred, revealing that their trading desk had conducted analysis of different TWAP algos and found that they each achieved very different execution outcomes.
One point of interest to the group is the potential emergence of third-party algos. Leveraging algos from specialist, independent providers alongside traditional bank algos could enable buy-side firms to deploy high quality algos across a broader range of liquidity source, potentially helping with best execution. Although the buy-side firms present said that they weren’t aware of any third-party algo offerings in the FX space, at least one of them indicated that they use them in other asset classes.
A full round-up of all the topics discussed at the event can be accessed here:
