FX TCA Gets Boost with Launch of New Analytics Application that Breaks Down Data

Massachusetts-based consultancy FX Transparency, a provider of Transaction Cost Analysis (TCA) solutions to financial services firms operating in the currency markets, has launched a new hosted product that is focused on providing micro-level, detailed and in-depth analysis to users. The cost of execution was a recent talking point after some of the world’s largest custodian banks were alleged to have manipulated FX orders for clients which included state pension funds.

The new solution, FXT Analytics Analytics Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision-making. In the trading space, analytics are applied in a predictive manner in an attempt to forecast the price more accurately. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analy Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision-making. In the trading space, analytics are applied in a predictive manner in an attempt to forecast the price more accurately. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analy Read this Term™, complements the firm's existing products that are widely used by buy-side traders. FXT Analytics™ is a sophisticated offering whereby users can create bespoke reports on a hosted application managed by FX Transparency.

Under the advanced reporting structure, both managers, compliance staff and clients (of buy-side firms) will have the ability to analyze orders traded in various approaches, including bulk and aggregated orders, thus enabling firms to enhance their current understanding of TCA and make necessary amendments to reduce the overall transaction costs.

The new product comes on the back of demand from users of FX Transparency, who have requested tools that break down trading data to its bare minimum. John Galanek, COO of FX Transparency, commented about the product launch in a statement to the media, he said: “The common thread among our clients was a need for them to build a report on a subset of trade data. For the asset owner, that might mean a report on a single manager or sub advisor. For the investment manager, it often means a report for a single account or client, or perhaps comparing different execution algorithms or dealer-execution capabilities."

Since the e-trading phenomenon came to light over thirty years ago, the number of orders and transactions have multiplied in quantity, thus making data analysis difficult for users to conduct. Through the analytical application (FXT Analytics™) key sub sets of data will be searchable and made available for investigation and analysis. According to the company’s press briefing: “The application allows users to select a subset of their trades based on 19 different filtering criteria such as; ticket size, custodian-executed trades, and execution algorithm.”

FX Transparency has been increasing its user base as more and more buy-side firms trade in margin derivatives. Asset managers and hedge funds have extended their use of FX derivatives, according to the BIS (on its website), the number of non-bank firms contributing to the FX markets has increased dramatically during the last three years: “Trading in the FX market reached an all-time high of $5.3 trillion per day in April 2013, a 35% increase relative to 2010. Non-dealer financial institutions, including smaller banks, institutional investors and hedge funds, have grown into the largest and most active counterparty segment. The once clear-cut divide between inter-dealer and customer trading is gone.”

The analysis of execution and transaction costs were first introduced under initiatives such as best execution. Regulators have encouraged entities to serve their clients with ‘best practises’ in the way they offer order execution,

In the currency markets, TCA has been limited to buy-side firms and corporate treasurers. However, TCA could expand to other segments including the retail margin trading environment.

Firms in the retail FX sector can explore TCA solutions that provide clients with confidence that their brokers are not manipulating rates. In addition, it gives out a firm message of credibility, honesty and the use of transparent techniques to provide a better product to end users.

Louis Lovas, Director of Solutions at OneMarketData, explained the role of TCA in a comment to Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Magnates: “TCA is a measure of trade performance with an overall goal to improve alpha.”

TCA in the world's most liquid markets is in its infancy, plagued by the recent market manipulation by custodian banks, Forex Magnates believes its effects could spill over to the congested retail FX landscape as spreads are no longer the key differentiator between brokers. Literate and experienced traders are looking for best execution in its true form, furthermore, with more algorithmic trading taking center stage among private individuals and professional traders, the exact rate of execution measured against the actual market rate could be critical to the profitability of certain quantitative models.

Stephen Leahy, Head of Business Development - Americas at oneZero Financial Systems, explained why he thinks TCA will expand across sectors, in an email response to Forex Magnates: “I think that in the retail space TCA is not needed but could become the next marketing battleground.”

TCA will help users assess whether ‘marketed’ low spreads are in fact tight or leaning towards the broker, data from TCA will show the true midpoint.

In the latest quarterly industry report authored by Forex Magnates, TCA in the FX markets was a key discussion point, more details and the full article can be found in the current QIR4 2013 report.