Andrew Yao FX product manager at Portware
Andrew Yao FX product manager at Portware

Utilising FX algorithms to enable smart order routing

With Andrew Yao

First Published: e-Forex Magazine 27 / Algorithmic FX Trading / April, 2007

With all the disparate pools of liquidity, FX traders now have more options than ever when it comes to getting their orders executed. Effectively utilizing these different pools requires an understanding of how to optimize order placement logic based on the different characteristics of each liquidity pool. These may include speed of execution, anonymity, and cost of execution. We will discuss a basic framework for building such strategies generically referred to as smart order routing algorithms.When traders think of smart order routing, they all mean something slightly different. We begin by defining the most basic meaning of smart order routing with a simple example. Imagine there are 3 pools of liquidity for the FX trader and we are able to trade sterling at each one. The first pool of liquidity is provided by Bank1, the second by Bank2, and the third by ECN1 and each is quoting 5 million sterling at 1.9310/13. The next price level for each is 1.9309/15 and there is another 5 million there. In this...continued

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