Justyn Trenner CEO and Principle of Client Knowledge
Justyn Trenner CEO and Principle of Client Knowledge

Deploying FX Algorithms for Systematic Liquidity Management

Systematic liquidity management uses technology to make banks' FX businesses more efficient, and ultimately more profitable. This is not confined to the top few global banks, but is equally beneficial to smaller regional banks. Most, if not all, market-makers should be reviewing their trading processes and should be seeking to reduce costs by implementing liquidity management solutions. This article examines: 1. The rationale behind why an increasing number of FX market-makers are implementing systematic liquidity management into their FX trading environmen 2. The likely problems. 3. The short and medium term gains. 4. The long term goals.

First Published: e-Forex Magazine 35 / Algorithmic FX Trading / April, 2009

Mention a bank that employs the use of algorithms for FX and most people will assume they are used for proprietary trading, with the focus being either latency arbitrage or the ability to predict future market movements.  To date most organisations have used algorithms in this manner, mainly as it is easier to implement for a prop trading team than for managing liquidity: linking to a pricing engine, an e-commerce delivery channel and risk management systems.  That said, it is recognised that most, if not all, market-makers should be reviewing their trading processes and should be seeking to reduce costs – maximising crossing opportunities and minimising interbank trading, in terms of reducing both the number of interbank tickets and the volume.  The desired result is to reduce brokerage and settlement costs, and maximise the use of credit.Whilst this may sound simple, in practice it requires a thorough process in order to develop successful algorithms, and involves both the development...continued

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