The goal of any buy-side trader is to achieve best execution. For FX traders, transaction cost analysis (TCA) and other similar tools are making it easier to measure not only the buy-side trader’s progress on the mission to achieve best ex, but how well each dealer counterparty performs.
To better understand how end users view the capabilities of their intermediaries and the overall health of their dealer relationships, Coalition Greenwich conducted phone interviews with 342 buy-side FX traders globally between Q2 and Q4 2023. These interviews covered a range of topics, including but not limited to traders’ thoughts on triggers that could put a relationship with one of their dealers at risk and the reasons to use (or not use) multidealer platforms (MDPs). In addition, Coalition Greenwich interviewed 87 FX traders across North America, Europe and MENA in Q2 2024 to ascertain their views on evolving use of execution venues.
Buy side priorities: Pricing is the driver
When a buy-side desk evaluates its panel of dealers, there are multiple reasons why it may redirect its flow from one to another. The Coalition Greenwich research confirmed the buy side’s essential needs—pricing and quality of institutional coverage
Buy side views about MDPs
The common thread connecting the FX discussion on dealers and multidealer platforms is competition—end users want their dealers in competition with each other in order to both receive favorable pricing on individual trades and reduce dependence on an individual counterparty. Increased use of MDPs by the buy side is driving electronic trading overall and supports their growing focus on best ex. According to Coalition Greenwich research, end users such as asset managers, asset owners and corporations reference MDPs as the platform they will use more frequently over the next 12 months.
A note on SDPs
SDPs will remain an important part of the FX trading ecosystem, and the feedback on MDPs was primarily about the MDPs themselves. However, some of the discussion was about MDPs compared to SDPs. There are times when respondents felt using an SDP was beneficial; for example, one person uses them “for Algo spot outright execution.” Otherwise, points of differentiation benefiting MDPs varied from the tactical (single password to remember) to the more strategic (difficulty of integrating multiple platforms into the workflow).
More information about the report can be found here: https://www.greenwich.com/market-structure-technology/why-buy-side-chooses-their-fx-dealers-and-trading-venues
