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What key areas should desks prioritise when it comes to futureproofing? In order to future-proof FX desks, we need to think holistically across data, technology, talent, and strategy. These four key areas, if executed well, will drive a highly successful FX desk and ensure it maintains its operational advantage over time.
What should desks be focusing on when looking at data? I love data, however, to harness data effectively, we must ensure it is highquality, easily accessible, and that our desk can interpret and apply it. Take TCA for example – pre-trade, real-time, and post-trade. If we have accurate post-trade data, then we can analyse which banks are winning our flow, in which currency pairs and at what times of day they excel, how their spreads look, what their latencies are, and whether they have market impact when we trade with them. Armed with this data, we can challenge our liquidity providers, giving both positive and critical feedback that will result in stronger relationships and better execution in the future.
We can also use post-trade TCA to analyse our own decisions. How are we performing as traders? What does the alpha profile look like for our PMs, and can we give them any feedback to help with the trade idea generation process? When we combine post-trade TCA with real-time analyses of volatility, market depth, and current spreads, we can optimise our execution. Should we risk transfer, or should we use an algorithm? If so, which one? Without data that is accurate, accessible, and understood, none of this is possible.
Ensuring traders are alpha generators
PETER WELSBY, head of Europe FICC trading at Manulife Investment Management, sits down with The TRADE to explore how trading desks are evolving with the times and continuing to add value, touching on harnessing data, leveraging artificial intelligence, and building trust with portfolio managers.
How is your desk approaching the rise of artificial intelligence? At Manulife, we’ re actively exploring how artificial intelligence can enhance our trading desks’ value. Some applications, such as our in-house deep research tool, are focused on efficiency. It can screen the constant flow of fixed income trade ideas to identify the most compelling opportunities or perhaps consolidate dozens of macro viewpoints into a single note that highlights consensus views and key outliers.
Others are more quantitative, such as leveraging our own data to determine – given prevailing market conditions – whether a trade is best executed through voice, electronic, or algorithmic channels.
The opportunities are vast, but it comes with an important caveat; AI is not a silver bullet. It is only as effective as the person guiding it. A skilled industry professional can do incredible work with the technology, but it’ s important to keep in mind that on the flip side, inexperienced use can lead to risks. This is why it’ s important to us to approach the use of AI carefully – particularly where, when and how to apply it. AI amplifies existing skills and offers additional support to our teams and their day to days, but it doesn’ t serve as a replacement to the expertise and knowledge of our teams.
The onus is on us in the investment teams to evaluate the work product and partner closely with our AI development teams to drive the results closer to something immediately useful and beneficial.
What are you looking for in a trader and how do you ensure retention on your desk? The FX trading desks of tomorrow, and increasingly of today, require a new kind of talent. It’ s no longer enough to be a market expert. Traders now need a hybrid skillset, which could include skills such as coding ability, data science expertise, market structure knowledge, algorithmic experience, automation skills, and most importantly, the ability to build strong human relationships. The ideal trader is part technologist, part strategist, part market psychologist, and part diplomat. When we’ re building a trading desk, we look for diversity of skills, so we can build a team where traders’ strengths complement each other. Just as important is retention. Empowerment is key and important at our firm. Traders should have the freedom to experiment with new tools and data, rather than simply following old playbooks. Ownership of projects, opportunities to develop areas of expertise, and access to upskilling and cross training all help keep a team engaged and evolving. But above all, culture is vital. This means creating an environment where people want to come to the office and see it as a
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