ALGORITHMIC FX TRADING
>>>
helps the banks to fine tune the algos they offer and to get better results so it is important to get them involved in the development of TCA,” says Male.
User groups
Despite the increasing demands for FX algos from more traditional buy-side firms, there are still two distinct user groups. Whereas the more aggressive hedge funds, high frequency and momentum-based traders are relying on algorithms to generate alpha, the asset managers and corporates are using algorithms as a labour-saving device more than anything else, turning to the algos to automate the execution of a large order and minimise market impact, for example.
Will more effective testing lengthen or shorten the average algorithm’s life-span? “If you look at the equities market, the VWAP is still the most heavily used algorithm and that has been around for more than 10 years now,” says Male. “I think we will see a similar thing in the FX market where there will be handful of dominant and long-standing algos used by most participants that will be time sliced or TWAP algos that. And then there will be a few more algorithms developed by the banks aimed at the alpha generating traders and those will have a very short life-span because as soon as the market works out how these algos operate, they find a way to exploit this flow.”
Despite this bifurcated market, Male maintains that TCA is a valid means of analysing the effectiveness of both the labour-saving and more opportunistic algorithms used by the opposite ends of the buy-side spectrum. “Tere is still a big difference between the performance of one bank’s VWAP and another bank’s. So there is still definitely a need for more performance analysis. A lot of the banks are still in the building phase of their algorithms so have not invested heavily in their performance analysis and feedback. But I would maintain that if you are developing an algo, you need to test it heavily and the ones that are doing that are enjoying better performance.”
As the use of algorithmic trading develops in the FX world, many of the algorithmic trading providers will face the same issues. Most providers share similar user demographics – the hedge funds, the broker dealers and the large asset managers. Te hedge funds will be using the platform primarily to benchmark the effectiveness of their own proprietarily developed
100 | july 2012 e-FOREX
Jean-Philippe Male
“A lot of the banks are still in the building phase of their algorithms so have not invested heavily in their performance analysis and feedback. But I would maintain that if you are developing an algo, you need to test it heavily and the ones that are doing that are enjoying better performance.”
algorithms. Te broker dealers are looking to use liquidity aggregation, order routing and netting. And the asset managers are looking for workflow and access to aggregated liquidity.
Development process
According to Harrell Smith, head of product strategy at Portware, a developer of automated trading software, the level of involvement of the vendor in developing algorithms varies considerably based on the client segment. Hedge funds who are developing proprietary, alpha generating strategies have an attitude of don’t call us, we’ll call you. Traditional asset managers, however, rely on Portware to provide integrated access to algorithms from leading FX dealers, as well as execution algorithms that Portware has developed and makes available to all clients as a core part of the Portware FX platform.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168