Bar Raised on FX Trading
Electronic trading has been gaining traction in the institutional foreign exchange market for a number of years; technology providers are now targeting the remaining ‘high-touch’ business for potential conversion to the screen.
“We’re hearing that 20-30% of larger trades are still executed over the phone,” said Chris Matsko, head of foreign exchange trading services at Portware, a provider of trading technology. “You’re going to see that transition over to more algorithmic or electronic execution as traders get comfortable with the technology.”
A bit more than half of the FX market, which turns over about $5.3 trillion per day, is conducted electronically, according to industry estimates. That proportion has increased from less than 40% three years ago, driven by a broad regulatory push toward more transparent markets and advances in technology.
The evolution is first toward electronic trading, and then toward more efficient electronic trading. “There have always been conversations around more advanced execution methods — order splitting, algos, smart order routing and so forth — but that has tended to stop at the conversation level,” said Matsko, who recently joined Portware after about a decade in senior sales positions at FX platforms 360T and FXAll. “Some of the advanced desks are adopting algorithmic trading (both proprietary and off-the-self bank algos), which is where the market is slowly trending.”
“There’s a gap right now,” Matsko told Markets Media. “You have some traders that are adept and really understand algos and the concepts around smart order routing rules, etc., while others are still more comfortable picking up the phone and calling their broker. Our job is going to be to bridge the gap — in order to do that, we have to accommodate the ‘heritage’ style of trading and help transition them to the new age of FX execution.”
On the technology side, Matsko noted a shift from an out-of-the-box, multibank FX trading platform, to a multi-asset class execution management system that can effectively amalgamate a fragmented market.
“Global tier 1 asset managers are starting to trend in this direction,” he said. “As data comes into the market and onto the trading desk, it needs to be synthesized, analyzed, and understood in near real time, and on a pre-trade basis. That’s not really happening efficiently today because there are a lot of disparate platforms managing siloed data sets; it’s hard to really synthesize all of that proficiently in order to make informed trading decisions around available liquidity and execution options.”
Featured image via Creativa Images/Dollar Photo Club
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