Foreign exchange
But Ketley believes this is a trade-off that is well worth making , particularly as the firm ’ s counterparty strategy is stable and does not involve too much changing anyway .
The flexibility to tailor the system exactly to the trading desk ’ s needs is key . For the most part , the use of trading algorithms in FX by the buy side is relatively limited – although there are some exceptions ( see Patrick Fleur , Issue 7 ). However , many recognise the increasing electronification of the non-equity asset class markets , including FX , and at least
“ We use in house algos , we do that via the FIX API . We speak to the developers directly so that they understand what we are trying to achieve . Those in-house relationships and those conversations make it so much easier to customise the algos exactly the way we want them "
one pioneering firm has been using them in FX since 2002 . Once the decision to use algos has been made , the main question becomes whether to build it in-house , obtain it from a broker , or consider a thirdparty algo . Harmonic Capital uses in-house algos that can be customised to its specific needs – but the firm does not use any third-party algos for FX . While Ketley wouldn ’ t rule this out in the future , his concern is being able to maintain the transparency and understanding of how they work and being able to explain it if need be . With external algos , this could be difficult , especially as by their nature the way algos work is not always totally transparent due to the need to retain some element of commercial advantage for the vendors . “ We use in house algos ,” said Ketley . “ We do that via the FIX API . We speak to the developers directly so that they understand what we are trying to achieve . Those in-house relationships and those conversations make it so much easier to customise the algos exactly the way we want them .” The firm ’ s approach to data is similar . Harmonic Capital does all its pre-trade analysis in-house , as well as most of its TCA – although in the case of TCA , the firm is starting to incorporate third-party TCA . However , even here Ketley feels that caution is warranted , and prefers to create the firm ’ s own TCA , within reason , due to the flexibility that in-house solutions provide . That said , there is a balance to be struck and the firm is keen to get the best understanding of the market possible . Harmonic Capital performs a systematic multi-strategy approach , with the objective to capturing alpha from liquid futures and currency markets through macro-economic understanding . In terms of trading performance , relationships with brokers are key . “ We would rather have a low number of high quality brokers than a huge panel ,” said Ketley . “ Having a meaningful relationship pays dividends in the end because you get better pricing and spreads .” Some buy side firms have cut their broker lists in recent years . Notably , Deutsche Asset Management cut their broker list down to just five brokers . However , Ketley points out that the right number of brokers really does depend on the level of assets under management , the types of flow being traded and the business objectives . “ You need a sufficient number to get the liquidity you need , which in turn relates to AUM and ticket size , so there
34 www . buysideintel . com March 2017