Picking up speed: Retail FX focuses on delivering low latency trade execution >>>
Scorecards
As the demand for low-latency solutions increases, a challenge for retail FX traders is gauging the relative execution speeds of the trading platforms they use. Tis is where the use of scorecard applications and monitoring toolsets could be of great benefit. Few firms have the ability and desire to display their execution times. Additionally, brokerage firms have the choice of treating traders differently based on the broker’s risk management decisions. So a broker may be sending certain traders’ orders for STP execution and other traders’ orders may be handled by a desk. Publishing execution fill time statistics therefore may not be possible.
“Our reporting solutions capture the execution information from the Private Label MT4 platforms to the broker’s ECN, but there is no mandate that our client firms make that data available to the retail clients. We expect that retail FX execution latency will become a competitive issue in the near future. With the information that we capture and make available, our clients have a competitive advantage once retail traders start demanding latency information,” says Leahy.
He believes that the latency question will become an area of intense competition for brokers. “Brokers offer similar platforms so latency is one area where they can look to differentiate and to market themselves. We have heard similar sentiments expressed in the equities world – to the point where many are questioning the value of a continued focus on low latency. Te arms race in the high frequency equities world has become ridiculous and is starting to become a zero sum game. But the retail FX market is still a long way off that point. Tere are still a lot of trades that can take up to a whole second. Once we get to the point of sub 10 millisecond executions, then it will be time to look at a different area.”
While applications such as scorecards and monitoring toolsets are seeing greater use among retail FX traders keen to gauge the relative execution of their brokers’ trading platforms, Mason believes that there is room for further development in this area. “Most retail traders start off by pinging the broker’s IP address to determine their connection speed to the server. Tis only quantifies how long it takes to send packets from your PC/server to the broker’s server, then back again. We think the next logical step is to disclose actual trade execution times. TradeSpot FX’s new back-office web portal, currently being tested by Divisa Capital, allows the broker to generate various reports that can be tailored for the Broker, IB, Money Manager or Client to display the execution of each trade.
Co-location James Mason
“Te increasing sophistication of Expert Advisors (EAs) and automated trading systems is forcing traditional dealing desk brokers to seek automated trade processing and bridging solutions to handle this order flow.”
A further step taken to reduce latency is the use of co-location, especially in the venue-specific world of equities. Tere is a major feature in this edition of e-Forex on the topic of co-location in FX. However this focuses mainly on the institutional space. But is it also a worthwhile step for retail FX traders? “Co-locating within the same data centre is the optimal setup but due to high costs and lengthy contracts, this option is usually only implemented by omnibus partners and professional traders,” says Mason. “Currently, the most cost effective option for retail FX traders to minimize latency is to setup a virtual private server (VPS) within the same data centre as their broker.” For traders using Expert Advisor on the MT4 platform, Brankin strongly recommends the use of a VPS. “Tis is a very cost effective way of improving connectivity and thus reducing latency to our trade server.”
So, with the increased use of co-location, VPS, DMAs and ECNs, can the retail FX market ever produce a low latency trading environment to match
january 2012 e-FOREX | 167
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