Conference Dailys TRADETech FX Daily 2018 Wrap-up | Page 14

THETRADETECHFX DA I LY
in-depth
DATA
TCA data on FX algo
performance winning over the
buy-side
TRADETECH FX EUROPE PANELLISTS DISCUSSED THE INCREASING ADOPTION OF ALGORITHMS IN FX MARKETS, ALTHOUGH
UPTAKE HAS BEEN SLOW.
T
ransaction cost analysis (TCA) data on the
performance of algorithms in foreign ex-
change (FX) is proving a hit with the buy-side.
Speaking at TradeTech FX Europe in Barcelo-
na, a panel of FX market participants agreed
that the use of algorithms will likely increase.
However, uptake has been slow on the buy-side
despite the market moving towards an equi-
ties-style approach through more automation.
“We were early participants in the algorithm
space at Schroders,” said Gordon Noonan, head
of FX trading at Schroders Investment Manage-
ment. “I’ve seen a lot of peers over the past six
months or so, who in the past have told me they
would never use algorithms, beginning to ask
questions.”
“BestX, our TCA provider, has analytics on algo
performance, so I can see and estimate with
reasonable confidence when comparing various
data points if one algo is better than another,
and that wasn’t the case two or three years
ago.”
The panel, which consisted of buy- and sell-side
market participants, as well as a technology ven-
dor, agreed that fragmentation in FX is a cause
of frustration across the industry, especially for
market takers that provide algo services.
“The market is moving more towards algo-
rithms and equities style, and there are numer-
ous events that took place where that particular
segment was really going to take off,” added
Giuseppe Nuti, head of rates at UBS.
“But the reality now is that a lot of trades
happen on a principal basis with the same coun-
terparties that firms have been using for five or
six years. There is an oversupply for small sized
trades and allocation for larger sized trades,
which is problematic with less market maker
appetite for risk.”
A survey from JP Morgan last year of 200
institutional FX traders found that 38% were
planning to increase their adoption of algos over
the next year. Although many trader expressed
the need for algos to be customisable to suit
their order and trading style, something which
traditionally standard algos do not provide.
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THETRADETECHFX DAILY
Issue 2
“I’ve seen a lot of peers over the past six months or so, who in the
past have told me they would never use algorithms, beginning to ask
questions.”
GORDON NOONAN, SCHRODERS INVESTMENT MANAGEMENT