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the risk back into the trading book, then there is the risk of losing any profit gained from the original spread through lack of efficient risk processing.
The progression of platforms
Te contrast between algorithmic trading using a selection of API feeds and calling up a salesperson who shouts across the floor to a trader for a price is huge and far bigger than the historic e-/manual divide. On the other hand, the different ways of trading are also converging: the difference in speed and margins to a buy-side between them requesting a quote through the web-based single dealer portal (SDP) of their bank and phoning a salesperson at the same bank who quotes them a price from a streaming rate at the salesperson’s desktop drawn from the bank’s proprietary pricing platform is minimal.
Tis convergence is in part due to the range of counterparties available. Venues such as FXall, Hotspot and Currenex offer both anonymous and visible trading areas on their venues and the combination of white-label ECNs and SDPs ensure that every organisation, from global banks to tiny corporations and private individuals, can execute FX trades electronically.
With such wide-ranging market participants comes a wide range of venues specialising in meeting the needs of specific client segments. For example, FX Connect is designed for institutional investors and our research shows nearly all of their client base is institutional; EBS keystations and Reuters workstations are designed around the ergonomics of bank traders. Te challenge for these two has been to incorporate non-traditional trading styles while protecting their core market users.
One of the keys to the success of e-execution in FX has been the balance of fragmentation and sufficiency of liquidity in one place. Te constant stream of adaptations and innovations introduced by both multi-lateral venues and bilateral platforms is due to the competition for clients and, as in any economic market, client demands are met by both new products and adaptations of existing ones.
Te success of these is dependent upon the timing of their launch. Te arrival of FX Connect and FXall filled a gap in the market not covered by existing products and both proved to be very successful. Tis is not always the case, as newcomers can struggle to achieve critical liquidity – others have sought to build block trade venues, with limited traction, and a major venue is responding by offering the capability, an example of innovation from within the industry.
Trying to please everyone
Tere are considerable differences in methods of execution across different market participants and products, driven by the transparency and liquidity of the market as well as the complexity of the product and requirements of the end user. Different venues
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