THETRADETECHFX DAILY
‘ greater anonymity’ is a key driver behind hedge funds’ usage of algorithms, totalling 9.49 % of responses, and pointing towards a potential growing need for reduced implicit trading costs as the‘ race for microseconds’ in algorithmic trading loses traction across the industry.
These findings indicate that hedge funds are beginning to import the‘ equity algo playbook’ into FX, with flow spread across providers as the market becomes increasingly automated.
For many buy-siders trading in FX markets, algorithmic trading tools can help to achieve best execution, as well as reduce price disruption, optimise cost, handle multicurrency hedging workflows and enable secure transaction cost analysis( TCA).
In some cases, this has translated to replacing traditional systems previously used in FX trading to AI-driven workflows. For example, some firms, such as Quoniam Asset Management, are beginning to move away from tactics such as the bag-of-words approach – which analyses text data for processing and extraction – to use AIsupported sentiment analysis instead.
Speaking to The TRADE, Markus Ebner, head of multi-asset at Quoniam Asset Management, said:“ Forecasting FX is definitely the most challenging market. It’ s the most efficient market from our perspective and while it’ s easier to generate value added in equity indices, for example, by applying AI, we’ ve seen strong increases in our Sharpe ratios.
“ I believe that AI and the more sophisticated tools like AI agents will have a significant impact on the FX trading desks looking forward. Using tools like this, you can run analysis where you let different AI agents compete against each other, learn from each other on how to best behave in the execution.”
In addition, Ebner also emphasised the importance of keeping up with AI adoption, to avoid losing competition in FX markets and to help navigate market efficiency pressures.
Specifically, he indicated that the current algo landscape for FX favours firms that can continuously enhance their AI tools and data analysis, stating:“ If you are not up to date at the edge, you will definitely lose business.”
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