Deploying FX Algorithms for Systematic Liquidity Management
Justyn TrennerCEO and Principle of Client Knowledge
Systematic liquidity management uses technology to make banks' FX
businesses more efficient, and ultimately more profitable. This is
not confined to the top few global banks, but is equally beneficial
to smaller regional banks. Most, if not all, market-makers should
be reviewing their trading processes and should be seeking to
reduce costs by implementing liquidity management solutions. This
article examines: 1. The rationale behind why an increasing number
of FX market-makers are implementing systematic liquidity
management into their FX trading environmen 2. The likely problems.
3. The short and medium term gains. 4. The long term goals.
Mention a bank that employs the use of algorithms for FX and most
people will assume they are used for proprietary trading, with
the focus being either latency arbitrage or the ability to
predict future market movements. To date most organisations have
used algorithms in this manner, mainly as it is easier to
implement for a prop trading team than for managing liquidity:
linking to a pricing engine, an e-commerce delivery channel and
risk management systems. That said, it is recognised that most,
if not all, market-makers should be reviewing their trading
processes and should be seeking to reduce costs - maximising
crossing opportunities and minimising interbank trading, in terms
of reducing both the number of interbank tickets and the volume.
The desired result is to reduce brokerage and settlement costs,
and maximise the use of credit.
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