FEATURE
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“I’d call eradication of unnecessary latency from a smart-order-routing engine ‘basic hygiene’, “says Atkinson, “It’s an unavoidable necessity. But of even greater importance is the engine’s ability to accommodate sophisticated rules that take in to account the heterogeneous capabilities of each liquidity provider. Knowing the fill probability and latency of a venue at the point of execution means the engine can make some intelligent decisions about where to route orders to ensure that the trader’s priorities are met. For example, some trades may need to be completely filled no matter what, while others should only be filled at a specific price point, even if that means the order is at risk of an incomplete fill or rejection. Having an engine that can weight liquidity layers and then make rapid decisions taking into account venue latency, fill probability, and order priorities is essential. If the engine is able to model complex order states in real-time, then it’s possible to build some pretty sophisticated rules for capturing liquidity and avoiding slippage.”
Internalisation
In addition to capturing external liquidity, an FX business should look to internalise as much of its own flow as possible, says Atkinson. “Integrating an aggregation and smart order routing engine with an internal matchbook will allow an FX business to maximise profitably and avoid the pitfalls of executing externally. Tis of course assumes the organisation has substantial enough flow to create the necessary inventory. In the event that internal liquidity is insufficient, the order router should be flexible enough to partially fill an order internally while routing the unfilled portion to external venues. To do this, the smart router must be able to maintain a transactional view of the state of the order at all times, allowing maximum internalization while avoiding over- execution.”
60 | april 2012 e-FOREX
When it comes to predicting the characteristics and features that the next generation of liquidity aggregation products will exhibit to further facilitate automated trading and auto hedging, Atkinson says it is almost impossible to predict. “Tere are almost as many ideas as there are trading organizations. Terefore, trading groups need to implement open, flexible solutions that can accommodate their own ‘secret sauce’ in a robust, low-latent transactional architecture. We find that every smartTrade client wants to implement specialized functionality and capabilities that will differentiate them in the market.”
“Te FX market is evolving rapidly. So it is extremely important that a trading organization choose an FX eCommerce framework that allows them to change their strategies, respond to customer demand and market changes, and increase in sophistication over time. Being unnecessarily constrained by the underlying architecture of an FX platform will ultimately mean lost revenue and lost opportunity. If choosing an off-the-shelf platform offered by a vendor, it is important to take a deep look under the bonnet and not to just choose the product based on the front-end. If building internally, it’s important to develop an architecture and data layer that enables
frequent change. Whether the system is based on an off- the shelf platform, built using an external vendor, built with an in-house development team, it is important to prototype the system early in the design phase and test the business functionality to ensure that the system will meet the business requirements,” says Atkinson.
Transparency
While Atkinson refers to visualisation as a means for trading teams to discover emerging patterns in large sets of data, Yaacov Heidingsfeld, chief executive and co-founder of FX trading platform providers, TraderTools, believes the demand for improved visualisation tools is predicated by the trend for transparency. “In the last five years, the largest banks
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