Nicholas Pratt
Nicholas Pratt

Development, access and deployment: Lessons from the first wave of Algorithmic FX execution

The FX market has seen a first wave of execution algorithms but what stage is the market at now? Nicholas Pratt looks at what buy-side firms are looking for from the next generation of FX algorithms and what lessons have been learned to date that may help in their development.

The equities market is the forerunner for the use and development of algorithms and it is against this equities background that the FX market is typically compared and evaluated, particularly when it comes to assessing the relative maturity of FX execution algorithms and just how much choice the FX buy-side has in terms of truly industry-tested and proven algorithms.“There is a limited choice and sophistication in FX algorithms as compared to the equity markets,” concedes Kim Bang, president of Bloomberg Tradebook. “The equity market is now on its third generation of dynamic predictive algorithms but in FX we are still in the early stages. We are seeing time sliced responsive algorithms and in some cases market-pegged strategies with iceberg, hidden-order functionality.”The main reason for this lag is that the equity and FX markets are fundamentally different meaning that the earlier designed algorithms of the equities market are not simply transferable. “Compared to the equity...continued

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