Jeremy Smart Executive Director of FX at Morgan Stanley
Jeremy Smart Executive Director of FX at Morgan Stanley

Impact on Market Making banks of Algorithmic Trading in Foreign Exchange

Jeremy Smart examines the key challenges that Algorithmic FX trading poses for banks and the consequences for those banks that fail to embrace the changes required.

First Published: e-Forex Magazine 24 / Algorithmic FX Trading / July, 2006

Year-on-year volume growth of 25% for the past three years with no sign of let up - hardly the dying world of FX that so many had predicted over the last decade and a half? The key driver of growth has been electronic trading and in particular algorithmic trading.The drive towards electronic trading has of course come from technological advances, the ability to generate electronic prices for clients and equally important, the development of tools and platforms through which to distribute those prices. The multitude of ECNs, aggregators and multi-bank portals, as well as banks’ own single provider portals pays testament to the rapid advancement of electronic trading.As API technology has evolved, so algorithmic trading in FX has been born and the breadth of players and their backgrounds is staggering – from astrophysicists to spot traders.There are many diverse and complex challenges that face banks in this changing landscape:• Technology and the investment cycle• Pricing and risk...continued

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