>>>
Slicing and dicing -
Now that slicing and dicing algorithms have become a common feature of the FX marketplace, Nicholas Pratt examines how traders are using the latest algorithmic tool-sets for increased precision with FX order execution.
T
he use of algorithms in the FX world has clearly moved beyond the standard time- weighted average price (TWAP) format where
large orders are uniformly divided and executed at regular intervals during the day. Not only has the technology become more sophisticated and able to call on more intelligence, the ambitions and requirements of the market’s participants have also advanced.
Te leading FX algorithm providers have consequently concentrated on providing customised and tailored offerings that are able to meet the specific needs of traders. More intelligent algorithms can be configured to provide users with more flexible management and monitoring of orders during the execution process; market impact and information leakage can be minimised through greater randomisation; algorithms and execution engines can be conjoined to create more sophisticated FX order management tools; and the development of benchmarks and transaction cost analysis can influence the future creation of FX execution algorithms.
Customising algorithms to match the preferences of participants does create some interesting issues though. For example, will algorithms based on the agency-style broker model prevalent in the equities market prove to be more popular than the principal- based broker model that has long been prevalent in the FX market? Of course, the equities market is different to the FX market and any other over-the-counter market. And although there may be a convenience for those firms that have developed a suite of algo services in the equity market to look to offer the same tools to the FX market, it is widely recognised that any algorithm has to be re-engineered for the specific market it will be operating in.
Agency versus principal model
As to whether the agency model or the principal model will be the more popular in FX, the direction of future regulation and also the extent to which clients are able to educate and acquaint themselves with the workings of the FX market will likely be important factors. For example, principal-based brokers may argue that as traders become more informed about best execution and start running more TCA, they may find that the major dealers offer a much tighter spread than is often perceived.
One concern though is that some participants may begin to associate best execution too much with price. Official definitions of best execution make clear that it
october 2011 e-FOREX | 133
utlising new algo toolsets for increased precision with FX order execution
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 |
Page 189 |
Page 190 |
Page 191 |
Page 192 |
Page 193 |
Page 194 |
Page 195 |
Page 196