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monitored and only executed when specific market conditions are met. Tere is, of course, the risk that the order is executed at a slightly worse price relative to VWAP, but the benefit of not having been executed on a temporary spike or drop in price may be substantially greater. One of the advantages of dealing desk execution is that a large order does not always need to be executed at the market. A good dealer, who knows the client’s investment style, is frequently able to work an order to achieve a much better execution result.”


ECNs


ECNs have a much deserved reputation for tight prices, excellent liquidity and market depth, says Potaczala. “Not only do ECNs benefit from a large number of liquidity banks willing to stream prices, but they also permit all market participants, including buy-side clients and other financial institutions, to trade opposite each other, which enhances pricing and liquidity. After commissions, the all-in cost of ECN execution is frequently lower than on other platforms. Te benefit of lower transaction costs is greatest for automated trading strategies that trade frequently, where a small fractional pip difference in transaction cost means the difference between a profitable and loss-making strategy.”


“Another important feature of ECNs is the ability to enter limit orders within the bid-offer spread. Not


only does this provide better execution, but it increases the probability of order execution. Tis is extremely beneficial to many complex trading strategies that rely on the execution of multiple transactions at the same time. Because the large number of market participants results in a large and diverse order book, ECNs provide a high degree of certainty that a tight bid and offer spread will be available. Tis is extremely attractive from a risk management standpoint, where efficient risk reduction is often just as valuable as the ability to open a position at an attractive price,” adds Potaczala.


As an FX broker offering only non-dealing desk execution rather than the hybrid approach, it is no surprise that FXCM, another of the leading FX brokers is more forthright in stating the advantages of this approach. “As FX market participants in the retail space grow more sophisticated and varied in the strategies they use, the industry is being held back by dealing desk firms favouring customers using strategies that buy into falling markets and sell into rising markets,” says Brendan Callan, managing director, FXCM EU. “Clients like this are preferred because typically the time between their orders will be hours or even days, giving the dealing desk enough time to


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