Slicing and dicing - utlising new algo toolsets for increased precision with FX order execution >>>
more direct liquidity provider execution. “FlexTrade’s FX trading systems are customised to allow for all of these different types of execution and price discovery needs,” says Dantone.
While these differences are reflected in the range of basic algorithms that have long been available in the FX market, they are also reflected in the work being done to add more precision to algorithmic execution, says Dantone. For those firms that are primarily looking to reduce market impact, adding more randomisation to the basic time slicing algo is important. It allows the client to be more secretive and less detectable to the rest of the market. Other order types, like pegged orders, enable firms to take advantage of better price environments through flexible execution rules, while iceberg orders enable larger orders to stay off the books. “It is all about being flexible enough to move with the market.”
Many of these algorithmic tools play on the ‘dark’ liquidity aspects and opportunistic objectives that see the trading process as a participant acting against the market and therefore looking to disguise their intentions and cover their tracks as best as possible. In the FX market, however, there are those traders that are much more relationship-based and are working with, not against, the liquidity providers. “Tis is why banks like systems like ours,” says Dantone. “Te banks can request execution parameters from their clients which can be written into FlexTrade’s algos, making for a much more symbiotic relationship.”
Similarly smart order routers are now being fitted with more intelligence to judge the routing decision on more factors than simply price, says Dantone. “For example, if a prime broker charges you a set amount for trading with another counterparty and that counterparty is only slightly cheaper, the small price difference may make it sensible to trade with the prime broker. Tere are other factors to consider especially when trading with specialist banks. Some orders may be so large that only a select number of banks would want the business so the SOR system must be able to take banks on and off the system as required. It is about adding business logic to the automated process so that the SOR is not based purely on price.”
Te other big development is the use of and demand for post-trade analysis tools, says Dantone. “More
Bob Dantone
“More of the buy-side firms are using e-trading tools across asset classes where post-trade analysis is a more
regular feature. Tis demand means that a lot of the post- trade challenges are being overcome.”
of the buy-side firms are using e-trading tools across asset classes where post-trade analysis is a more regular feature. Tis demand means that a lot of the post- trade challenges are being overcome. In our system, if a treasury manager sends an order to an execution desk, our blotter shows exactly what that trade looks like and this makes it easier to beat the benchmark. It is about having a visual representation of what banks are offering the best prices.”
Increasing customisation
Increasing customisation is one of the primary features of the developing FX algorithmic trading industry, says Gary Stone, chief strategy officer at Bloomberg Tradebook. Tere are stealth algos that can be turned on and off. Tere are algos that help traders to ‘ladder’ their position, there are iceberg algos that enable clients to show a bit of their liquidity but keep the majority of it undisclosed. Te no-show/iceberg algos are the most popular algo types for minimising information leakage. Tere are more effective ways to
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