ALGORITHMIC FX TRADING
tools in the hands of the business users and the traders so that they can clearly express their views and either the technical teams can upgrade the algos or, where appropriate, the traders can make the upgrades themselves. It is really about being collaborative when it comes to upgrading the algos.”
New developments in 2012
So what developments can we expect in 2012? “Most of the feedback we get from customers is about the ability to develop execution algorithms,” says Hubscher. “A lot of the large trading platforms and execution management systems do not seem to be suited to developing execution algorithms so maybe there is room for a lightweight development platform. We are also seeing more complex trading strategies in the FX world. For example, there is a greater interest in FX futures. It is one thing to run a cross-asset trading strategy but if you are able to convert an FX future to look like an FX spot trade, it becomes much easier to develop an algorithm for trading FX futures. It is not straight-forward and it does require a great deal of customisation but I expect this to be an area of continuing focus for 2012.”
Credit Suisse has developed FX algos for two primary uses – the first is for its own internal use to optimise its own pricing an risk engine in order to offer the tightest spreads; the second is to offer an execution service for clients. In terms of the latter use, Credit Suisse has adapted the suite of algos developed for the equities market to reflect the behaviour of the FX market. “Te biggest difference between equities and FX is the market data available,” says Ian Green, the head of Fixed Income E-commerce at Credit Suisse. “In equities you are dealing on an exchange and you have full depth of market data whereas that is not the case in FX.”
Clients are increasingly trading in multiple asset classes, hence Credit Suisse’s decision to make their algos available in a range of markets. “Clients that have used our algos in one asset class will find our APIs work just as conveniently in another asset class,” says Green. Tere is also a growing demand for less liquid currencies however there is not yet a comparably developed agency market for laying off risk in FX options. “If you look at the ECNs that are catering for these instruments, you see that it is not possible to trade FX options in the same way as spot FX. However, we continue to expand our range of capabilities for electronic options trading and across
140 | january 2012 e-FOREX
Ian Green
“A lot of the execution problems you have to solve in the FX market are more difficult than in other asset classes,”
the market there is pressure for more provision. To an extent, this has been in anticipation of possible regulation but now, like much in e-commerce, it has its own momentum that is leading to continuing change irrespective of whether or when new regulations are introduced. “In terms of the algos that we use for our own market-making, we are sensitive to market changes such as when earlier this year EBS moved to pricing on deci-pips,” says Green. “Many banks that came to electronic market making from a trader tools background had a robust and consistent approach to automated trading in normal markets. However, in the event of a market crisis you need a more powerful and empowered machine to offer consistent pricing. With our algos that stress is already built into the system. For some dealers it may be unsuitable to maintain a comprehensive pricing capability that can keep up with the current levels of volatility and strains on liquidity but we spent a lot of time developing this capability three years ago.”
Increasing complexity
Could FX algos develop to the point where they are more complex than equities algos? “A lot of the
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