Algorithmic FX Trading : The next wave of FX Algorithms taking order execution strategies to another level

First Published in e-Forex Magazine January 2010

Nicholas Pratt

What will be the next wave of FX algorithms? Nicholas Pratt charts the development efforts of the leading algo providers to examine how execution strategies in FX can be taken to another level.

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It may have not been the greatest year for growth in the capital markets but there have been pockets of positive progress, not least in the FX market and particularly so in terms of algorithmic trading. "FX algorithms have certainly come on in the last few years. Electronic trading in FX has increased, through both multi-bank portals and single bank offerings, and algorithmic trading has been widely adopted, as it has in other asset classes," says Giles Nelson, senior director of strategy and evangelism at Progress Software, a provider of application infrastructure software. There are, of course, a number of different ways that algorithmic trading is used. The classic execution strategy is where traders look to split their order into several smaller trades that are then carried out over a period of time rather than executing all at once - the idea being that any market impact is minimised. "But, of course, the FX market does not have the same market impact issues as in equities because of the excess liquidity and the OTC structure," says Nelson. "In FX it is more about achieving a weighted price than chopping an order into small parts."