Dr. John Bates & Chris Martins Dr. John Bates, Vice President and Founder, Apama Products, Progress Software, Chris Martins, Principal Product Marketing Manager, Apama Products, Progress Software
Dr. John Bates & Chris Martins Dr. John Bates, Vice President and Founder, Apama Products, Progress Software, Chris Martins, Principal Product Marketing Manager, Apama Products, Progress Software

Tackling some FX Algo Misconceptions

With the rapid adoption of algorithmic trading in equities, speculation regarding how the equities experience will translate to other asset classes, such as Foreign Exchange (FX), has given way to a number of myths. In any emerging market, one can expect numerous assumptions and misconceptions to spring up and based on our client experience, we have categorized the main myths surrounding algorithmic strategies that incorporate FX.

First Published: e-Forex Magazine 28 / Algorithmic FX Trading / July, 2007

Myth No. 1 – Algorithms are for Equities only The presumption that algorithmic trading is equities-specific is largely a legacy that reflects the origins of algorithms in equities and the fact that first generation algorithms focused upon impact-minimizing strategies like VWAP, which have particular applicability for that asset class. From that narrow perspective, one might assume that FX is less hospitable to algorithmic trading. However, with the availability of APIs that provide electronic access to FX liquidity and the use of algorithms for signal generation, rather than just minimizing market impact, the opportunities for algorithms have significantly expanded and now include FX, as well. Aite Group has estimated that algorithms currently account for 7% of trades, but will represent 25% of trading activity in three years. We believe that such estimates might be conservative, given the tumultuous state of the FX market, replete with mergers and acquisitions, and the demands of...continued

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