DB's Autobahn embraces FX Swaps

Deutsche Bank single dealer platform is the first bank to introduce foreign exchange swap orders, offering them on its electronic commerce platform, Autobahn, in a move the bank says is a natural extension of its e-FX capabilities.

Foreign exchange swap orders allow clients to place an order for an FX swap on a platform, which is executed when the market rate reaches their order level. Alternatively, a Deutsche Bank trader could provide them with a manually executed ‘inside fill'.

Deutsche has been developing the functionality to offer swap orders on Autobahn over the past three months and began testing it with a number of clients in early September. On September 19, the new product became available to all Autobahn users.

"We see this as a sign of the changing nature of the FX Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term market, which is evolving quite quickly to follow the e-commerce path set by spot and some FX derivatives. Our aim is to offer clients more products and services within the FX swap space in an electronic format," says Adam Vos, global head of FX forwards at Deutsche Bank in London.

Swap orders are initially available in 20 of the most liquid G-10 crosses, although the bank plans to extend it to cover less liquid emerging market currencies in due course. According to Vos, the product is targeted predominantly at more sophisticated FX swap desks at other top-tier banks and mid-tier banks, but could be used by other institutions as well.

"Further down the line, this type of product could certainly add value for real-money clients looking for best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term or corporates with known cashflows. Both would be able to get filled at a better price than they might otherwise have done by using swap orders," he says.

In addition to swap orders, Autobahn already offers electronic trading in FX spot, swaps, forwards, options, structured products and non-deliverable forwards.

Swaps are used by institutional traders to fund their foreign exchange balances. Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another. In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close out any foreign balances and re-institute them for the following day. To do this they typically use tom-next swaps, buying (or selling) a foreign amount settling tomorrow, and then doing the opposite, selling (or buying) it back settling the day after.

The interest collected or paid every night is referred to as the cost of carry. As currency traders know roughly how much holding a currency position will make or cost on a daily basis, specific trades are put on based on this; these are referred to as carry trades. The BIS; a global leader in recoding actual FX transactions records swaps as achieving around 30-35% of total flows.

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