FEATURE
>>>
the shape of the liquidity mirage. “A lot of these algorithmically-driven execution systems generate a lot of orders in the same areas. Te liquidity mirage applies to any institution that does not understand that when they make the same price available on multiple venues, they create the potential to be traded against, in a much larger way than originally intended. Tat is why I need to have faster algorithmic ability – because if my price is traded against, I can adjust my positions and prices accordingly,” notes Heidingsfeld.
Tis is not to say that the order-driven market described above and created by the new participants in the FX market will ever exceed the quote-driven market operated by the major FX market-making banks. But it is indicative of the trend for trading practices and models to be imported from one asset class to another. One such trend is the growing penchant among traders for multi-asset trading and including FX within these strategies.
Heidingsfeld does not see this trend as having a major impact on the FX market. “It is good to have a multi-asset approach to viewing P&L and managing risk but, in terms of trading, I think most participants will continue to position themselves in what they’re good at,” says Heidingsfeld. “So I don’t think liquidity management will become more holistic, it will become more specialised. While the larger players may be able to be all things to all people, their smaller counterparties will be driven towards specific liquidity providers. I think the FX market is big enough to cater to all of these different approaches – quote- driven or price- driven; single-asset class or multi-asset class – without affecting the price dynamics. Te most important thing is that liquidity begets liquidity.”
Convergence
According to Carl Martin, group technology director at Eurobase International the big challenge in liquidity management revolves around the blurred boundaries between different participants and what used to clearly constitute the buy-side and the sell-side. “Previously in FX the buy-side would try to get the best price and hit it while the sell-side would just aim to have a competitive price but now things are becoming much more convergent, liquidity is more dispersed and the trading relationship between buy and sell-side is more circular. Te best bid and offer is still important but it is also becoming important to protect your liquidity providers.”
54 | april 2011 e-FOREX
As a wide range of participants enter the FX market, there are far more trading strategies and objectives at play, says Martin. “Some may be taking a long view of the market, whereas others may be looking to get out as soon as they can, and others may be simply looking to balance their books. A liquidity management system has to be able to interpret all of this and to put all of this liquidity into context and to do it all on an automated basis.”
Martin refers to this as the ‘liquidity switch’, where feeds are constantly analysed and liquidity providers are judged against one another. Ultimately FX firms have to make a judgement call or an educated guess but through the use of systems and mathematics it is possible to reduce the amount of guesswork needed.
Te need for liquidity management systems to keep up with the different strategies and behaviour is indicative
Carl Martin “Te aggressive, alpha generating algorithms
are out and the intelligent, cognisant algorithms are in because they are able to absorb much more information aside from simply price.”
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 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168 |
Page 169 |
Page 170 |
Page 171 |
Page 172 |
Page 173 |
Page 174 |
Page 175 |
Page 176 |
Page 177 |
Page 178 |
Page 179 |
Page 180 |
Page 181 |
Page 182 |
Page 183 |
Page 184 |
Page 185 |
Page 186 |
Page 187 |
Page 188