ALGORITHMIC FX TRADING >>>
ECNs, depending on the currency pair considered. not as simple. In practice, implementing such
The important factor lies in reducing the gap between strategies is much more intricate due to factors such
the price displayed and the price executed, between as network latency and computation complexity. Thus
the computed algo-weighted price and the effective the race to develop better, faster and more efficient
average price of an execution.” SOR algorithms is constantly evolving.”
Hidden liquidity The key, says Muzammal, is having as much
information as possible on where the liquidity is likelyWith so many different ECNs and other FX venues,
to be before attempting to trade. “Any attempts tothe term “hidden liquidity” takes on many forms, says
trade may signal your intention and therefore theseFarooq Muzammal, Head of Foreign Exchange at
should be minimised. We have found that there is aMAREX Financial, an independent broker specialising
lot of ‘phantom liquidity’ when trying to executein electronic execution. With more options available
larger orders so it is important to route this out tousing SOR, which itself allows orders to be hidden off
ensure all prices shown are tradable. We have designedthe platforms, there has never been a more difficult
several algorithms specifically to ensure that the pricestime in locating and exploiting this hidden liquidity,”
we show are an accurate representation of the realsays Muzammal.
market as possible,” says Muzammal.
Traditionally, “Iceberg” style reserve orders are a Improving order handling
popular choice for institutions who do not want to
Smart order routing is also able to improve ordershow the full depth of their large order books. At the
handling functionality, provided that it is able tosame time, liquidity sniffers are constantly on the
know at what average price it is able to get prices forlookout to detect the trading patterns of these very
the desired amount of a currency pair and to obtain itorders, resulting in a constant battle between the
at the pre-visualised price with a minimal risk ofexecution algorithms and the sniffer algorithms to try
slippage and the lowest brokerage fee possible. “Toto outperform each other, says Muzammal.
achieve this, the SOR must possess various types of
‘weapons’ that are located most often by different“As simple as it sounds, finding hidden liquidity just
order types that the SOR can either process ormeans knowing where to look, however doing so is
simulate if they don’t already reside in the venues the
SOR connects to,” says Gozlan.
Essentially an SOR with improved order handling is
one that has enough knowledge of the various venues
to direct orders to maximise the chance of getting
them filled. “For example, if you know that a
particular venue has the best EUR/JPY price during
Asian hours you can place your order on their server
assuming the order is executed on a FIFO basis,” says
Muzammal.
“You can then design the routing to place an
aggressive order with that venue rather than waiting
for the price to be available to your liquidity, thereby
ensuring you stand the best chance of getting the
price you are looking to achieve, even if it is only
offered once. Other improved order handling
functionalities includes improved execution speed and
rates, higher probability of order execution and lower
market impact upon execution of trade.”
Farooq Muzammal
“We have also found that there is a lot of ‘phantom liquidity’ Execution algorithms
when trying to execute larger orders so it is important to An increasingly common way of further enhancing
route this out to ensure all prices shown are tradable.” the way that SORs can help achieve best execution is
|76 october 2009 e -FOREX
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160