Liquidity Is Still the Most Important Factor for FX Algos Users

A Coalition Greenwich 2021 Market Structure & Trading Technology Study revealed that ‘Liquidity searching’ algorithms (algos) were the most popular type of algos among clients using algorithms.

Roughly 69% of respondents pointed to this type of algo being the most popular and often used form.

It should not be a surprise that this type of algo is the most popular. Liquidity-seeking algorithms, in short, provide users with the potential to reduce risk, which is achieved by the search process for short-term liquidity, so it can be accessed at a lower cost.

However, the more advanced algos are designed to reduce leakage of order information while seeking for liquidity by balancing the quality of the liquidity throughout the life of the order.

This is being achieved by dynamically adjusting venue segments, quantities of minimum execution and the spread allowances.

More Users

There are more types of algos than liquidity seeking only, although this type is the most popular. The others are passive, VWAP (volume-weighted average price) and TWAP (Time-weighted average price).

In general, the popularity of FX Algos in trading is growing and is expected to expand even more in near future. So, what do FX Algos offer to the client on the most basic level?

· Automation

· Transparency

· Confidentiality

· Adaptability

The COVID Era Helped the Algos

In the environment of a growing pandemic, more and more sectors of the economy began moving more into a ‘home office’ style of doing business, with a larger emphasis on ‘remote working’. This was also the trajectory for the financial industry.

The growing number of people working remotely has fostered a growing need for automation in trading. Moreover, this necessitated companies to meet new market demands. Recently, the majority of venues and large institutional players have been adding FX algos to their offers.

FxSpotStream is a great example of this, having launched its FX Algos and Allocations service back in 2021.

“As the pandemic unfolded, clients seemed to quickly appreciate the fact that algos can be used for smaller sized orders, that they actually are robust, and in times of volatility they are able to give the outcomes that people say they will give,” said a senior bank trading executive, speaking about the algo ‘FX Market Structure 2022’ panel, hosted by The Full FX.

FXSpotStream offers its clients 70 different algos and more than 200 parameters within those strategies.

Just recently, FXSpotStream extended its LPs’ algo offering from its original API channel to its GUI. Since launching algos in July 2021, it has supported over $19 billion in algo volumes across 46 currency pairs in spot and NDFs, from eight clients accessing 26 different strategies from 10 LPs.

FxSpotStream has kept expanding its algo offer since early 2021. The recent extension of it to GUI aims to make the usage of algos even easier.

The GUI is based upon HTML5 technology, which allows it to be launched directly from a browser without any need to download software onto a local PC/network.

The combination of the algo functionality with the support for allocations means FxSpotStream will be able to support a growing number of hedge funds, asset managers, multinational corporations and regional banks.