FEATURE
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space. Te goal of these services is to evaluate trade activity and therefore provide the information to allow for dynamic adjustments to strategies in real-time. However, that information is limited in scope. Clients want to see this information in some form of context. Traders want to use previous intra-day TCA reports to create a benchmark for the next day or for the next week but that capability is beyond most real-time TCA solutions,” says Lovas.
Most conversations have viewed these two paradigms as mutually exclusive, says Lovas. Te practical reality is that they cannot be. “Watching your trades intra- day with the goal of dynamically adjusting them for peak performance means to have to know what happened yesterday, last week or even last month. You cannot separate these two notions of TCA for effective trade management. Past performance and today’s executions have to be seen as a seamless model for slippage and other implementation shortfall calculations.”
Combining models
So why has there been no concerted effort to provide TCA services that combine the two different models of historical and real-time data? Lovas believes there are both technical and marketing reasons. “Vendors and brokers are concentrating on promoting their real-time TCA services and not integrating the two. Tis may change in the near future though as there is increasing noise about the benefits of ‘big data’. But there is also a technology challenge for many brokers and vendors. If you are blending historical data from order book with real-time tick data across multiple venues, it is no easy task, especially if you have not built this capability into your systems from the outset. You can end up trying to combine two different business models into one offering.”
Louie Lovas
“With the advent of high capacity capture, storage and query technology it’s now practical to manage FX data tick-by-tick. By doing so, your analytical options are much greater; you can look at trends, correlations and other opportunities intra-day at many levels and combine that with daily, weekly or monthly.”
60 | january 2012 e-FOREX
Te benefit of using analytics to improve trading capacity and to lower latency throughout the entire trade execution lifecycle is becoming increasingly apparent to FX participants, says Lovas. “While fragmentation is a relatively new phenomenon in equities, the decentralized nature of FX means it has had this sort of market structure at its very roots. It’s not uncommon for HFT/Quant firms to connect to multiple ECN’s and single-banks liquidity providers and managing a vast liquidity pool not just across a few of often 6-10 sources for alpha-seeking strategies (i.e. arbitrage, momentum, etc.) and market making.”
“Te analytical engines must be able coalesce the data, merging it into seamless order book. Supporting analytical engines have to operate on this vast view of the market, performing derived calculations (trends/ correlations/regressions/arb opportunities) and yet also provide the ability to post and repost prices
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