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direct access to multiple trading venues .
“ It could be exchanges , ECNs , bank and non-bank liquidity providers with matching servers located across multiple datacentres around the world . What makes it even more complicated is that FX trading is primarily latency sensitive , that ’ s why reliable and low latency connectivity to multiple venues globally is a key challenge ,” she says .
Global FX markets face shrinking bank balance sheets and an increasing amount of venues with varying trading protocols , meaning institutions must process literally tens of thousands of pieces of data every second . Liquidity conditions are obviously challenging in this environment and tight spreads in FX require fast execution . The speed of accessing and processing market data , and quick order routing are fast becoming key differentiators for large banks but finding the right balance for both connectivity and liquidity can lead to complications .
“ The optimal use of connectivity and liquidity is a complex problem ,” says Alexei Jiltsov , co-founder of data science firm Tradefeedr . “ It requires the trader to collect the quote and order data , and quantify market impact and how selection affects liquidity providers in the stack . A trade-off between adverse selection and spread compression gives the optimal composition of liquidity providers . It is also unique to each trader ’ s flow .”
“ Obviously , a major challenge is to capture and analyse every data point in a fast processing environment . Just as connectivity was solved by specialised technology
“ Just as connectivity was solved by specialised technology players , market data management and intelligence has a high fixed cost which can be more optimally managed by specialised players .”
ALEXEI JILTSOV , CO-FOUNDER , TRADEFEEDR
players , market data management and intelligence has a high fixed cost which can be more optimally managed by specialised players . Big institutions are starting to use common infrastructures to solve their specific problems just like in the case of connectivity .”
Looking ahead , it ’ s a safe bet that the volume of data , connections and venues will only increase . For institutions in FX , technology and trading systems will play a substantial role as to who winds up as the winners and losers in this space . Large banks have big decisions to make in terms of technology and systems , and those decisions must be made alongside considerable risk . But , as in the case of Standard Bank , taking that risk has certainly paid off for some .
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