FX Algos - the smartest new kids on the block?
deliver the analytics we have internally in terms of understanding options curves and surfaces, tick data and different gamma profiles within the same suite of products as the algos that will trade the gamma on these options. So it is an holistic set of products that enables the clients to first understand what it is they are trying to achieve, then run the analytics, then automate the options trades. If they are able to trade options, they will trade gamma and if not, they will use an options replicator.”
In essence it is a stage beyond the old black box approach to execution algorithms where clients were handed a machine that simply did things without offering a particular explanation of how they were achieved. “Our aim is to be 100% transparent and get our clients extremely comfortable with the idea that their executions are being affected per their own desires,” says Mount. “Tere is more awareness of transaction cost across our entire client base and therefore transparency is vital. We are transacting in the tightest markets possible because we are active market makers and this affects those transactions according to the rules that they set so its puts more
control in their hands and removes the emotion from the process.”
So what areas will be the focus for 2012? “We aim to integrate all aspects of the clients FX trading experience so that includes the analytics, the execution and the decision-making that comes with any of the trading decisions that are made,” says Mount. “And we want to develop the capacity for customisation and to deliver bespoke solutions in a shorter space of time. We also want to develop different GUIs. Te difference between RBS Agile™ and conventional execution algorithms is that there will be a lot of moving positions that you need to see depending on what type of user you are and your trading activity – for example, if you are trading gammas, you need to see the balance of your deltas. If you are a central bank dynamically balancing your reserves, you need to see the reserve portfolio plus the factors by which you want to tune it.”
Mult-asset class algos
Although RBS Agile is being described as a spot FX trading algo and is expected to be used for gamma hedging, Carrington emphasises that it is designed to be a multi-asset class product that interacts with the futures and fixed income markets and uses the same interface used for the FX market. Pushing the products multi-asset class capability will be a big focus for the bank in 2012 says Carrington given the increased appetite for multi-asset class trading. According to Carrington, the age of the multi-asset algo is already upon us. “RBS Agile is a multi-asset algorithm and we already use it in our own hybrids business to execute equity futures and interest rate futures as well as spot FX and that will be something we will be rolling out to clients in 2012. Pretty much anything that has a future in it, we can execute through RBS Agile.”
Tim Carrington
“Te equities market may be more advanced in its use of algorithms but in terms of the complexity of the actual algorithms and the mathematics behind it, I think the FX market is at least on level terms.”
Equity algos have always been viewed as more advanced than any other asset class algos – not least because equity algos were the forerunners and developed in sophistication at a rapid rate. While the fixed income market may still be in the relative dark ages when it comes to electronic and algorithmic trading, FX algos are now as advanced as their equity counterparts, says Carrington. “Te equities market may be more advanced in its use of algorithms but in terms of the complexity of the actual algorithms and the mathematics behind it, I think the FX market is at least on level terms.”
january 2012 e-FOREX | 143
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