Algorithmic FX Trading : Features : Algorithmic FX Execution: Evolutionary considerations for the FX Buy Side

First Published in e-Forex Magazine January 2008

Viraf (Willy) Reporter

consultant, TABB Group

The buy-side community has driven the need for electronic execution in every asset class they participate, a drive sustained by the desire to automate and standardize administrative processes as cross-asset players. Willy Reporter outlines how FX has become a prominent pillar toward that mandate.

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The buy-side community has driven the need for electronic execution in every asset class they participate, a drive sustained by the desire to automate and standardize administrative processes as cross-asset players. FX has become a prominent pillar toward that mandate.

A few years ago, processes such as algorithmic models, prevalent in equities, began to jump over the walls into other asset classes in varying degrees. But the unique characteristics of the FX negotiation relationship require unique adjustments (by both buy- and sell-side parties) that will always differentiate these needs from those of "true" exchange-based securities such as equities. While these automated developments have been infiltrating the FX markets with increased frequency, their benefits are debatable when viewing FX as a silo.

One requirement for the further proliferation of FX algorithms has already been met; buy-side participants have been thinking "electronically" about their FX execution processes for several years. So, if there is to be further opportunity for algorithmic relationships, it will likely come from the standardization required by middle- and back-office administrative processes. In other words, the triggering of an automated strategy initiated in one asset class will necessitate the downstream requirements of that strategy in other asset classes - like FX - to maximize efficiency. This pipeline alone will continue the pressure for suitable linkages to algorithmic-friendly execution for currencies.