Nicholas Pratt
Nicholas Pratt

Harnessing more intelligent FX Algorithms for superior order management and strategy execution

There is always room for improvement. This maxim is evident in some areas more than others, particularly in the capital markets industry where the financial crisis exposed the need for some collective pulling up of socks in areas such as risk management, regulation and governance. On the trading side, the pursuit of continual improvement has been much more apparent. Resources may be restricted somewhat due to the current market conditions but, at least in the FX market, firms are looking to harness more intelligent algorithms to enable superior order management and execution and to take their FX algorithmic trading capability to the next level.

According to Paul Tolman, executive director and founder of Beta-Gamma Research, a UK-based developer of advanced trading models, there are a number of FX algorithms that are trying to take advantage of various complex FX market parameters such as momentum and velocity factors, moving averages, pricing ratios and news and even-driven behaviour. “The vast majority of algos may be looking at the strategies used in the equities market such as volume-weighted average price (VWAP) and then applying them to the FX market but there are also a huge number of momentum-based trading models out there.“As for the news and event-driven algos, I think they are more prevalent in the speculative and prop trading parts of the market where traders are looking to take a punt on the direction of the market following a significant news event rather than the pure FX algos which are designed to trade on a more routine basis,” says Tolman.Changing role of the trader In regard to these more complex algorithms,...continued

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