THETRADETECHFX DAILY
from the floor
Dynamic panel structuring is key to maintaining trading efficiency
What factors do you use to analyse bank performance and set panels ? We consider a variety of factors , but pricing quality is first and foremost and cannot be overlooked . Under this idea is a multitude of factors including a constant assessment of bid ask spreads , counting rejects in terms of both absence of pricing and trade rejection , historical performance in terms of currency , size of trades , and importantly , the measure of bank availability in ‘ crisis ’ i . e . how reliable our liquidity providers are in difficult trading times . When the market is functioning well , spreads are tidy , liquidity is abundant , and quality pricing is easier to find . In those 5 % of times when the market is under stress , that ’ s when we need to know where to look .
Fill ratios and hit rates are also important factors when considering bank performance .
How do you structure your panels ? Our process for LP selection is dynamic , meaning we can adjust our LP panels easily and there is no real lag between analysis and panel adjustment . This flexibility helps us respond quickly to changes and to maintain trading efficiency . We can segment our flow into specific currency buckets based on several characteristics such as currency , groups of currencies , and size . We then decide what tier the trade or groups of trades fit into in terms of difficulty .
Underneath this , we also consider market conditions or the desired outcome for a particular trade . While we have an idea for the number of banks a trade would ideally have , we don ’ t believe that throwing as many LPs as possible into an aggregator will allow us to achieve an efficient spread . I think the market now agrees too .
The TRADE sits down with JOSEPH FORDE , FX trader at Brown Brothers Harriman ( BBH ), to unpack the best approach to panels , highlighting the key factors when it comes to analysing bank performance , the importance of a flexible structure , and what should be front of mind to maintain effective , long-lasting relationships with liquidity providers .
How can you move into the position of ‘ preferred customer ’ and what benefits can this bring ? We see our relationships with our liquidity providers as partnerships , and we take a strategic approach that emphasises mutual value and long-term partnership . We don ’ t want or expect our LPs to be the best at everything . We value transparent communication - if you aren ’ t going to be efficient with GBPUSD but you are going to add value somewhere else , then let ’ s have a conversation and we can structure our panel accordingly .
As I ’ ve mentioned before , we place a lot of value on reliability and consistency in both good and bad times . All of this helps to create a more efficient environment . Moreover , the benefit of this mutual understanding is that it fosters the creation of long-term successful relationships and a well-functioning market .
How do you leverage bank relationships to get the best pricing ? We use a combination of engagement and transparent communication to leverage bank relationships to obtain quality pricing . When you reach a point in the relationship where you have regular dialogue , consistent trading volume , and productive use of technology in terms of analytics and execution , then you have a good base for building lasting relationships that support your competitiveness in the market .
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