Nicholas Pratt
Nicholas Pratt

Deploying rule-based FX algorithms in the quest for Best Execution

Where would we be without rules? At the time of writing Europe is in the middle of its four-yearly football tournament where once again controversy is raging over the persistently enigmatic offside rule which was originally designed to make the game a more attractive spectacle and now serves to fuel post-match arguments between rival fans. This debate, which has raged for decades, traditionally centres on the lack of consistency in applying this rule. The room for interpretation is too wide, leading to these inconsistencies and the accusation that it may be one rule for one and another rule for the others.

In the international FX market, rules are also becoming an important part of trading. In this context, where these ‘rules’ relate to the parameters within which to base trading algorithms rather than any compliance edicts, the fact that the rules are different for each and every organisation lies at the heart of the attraction. Advances in technology have enabled firms to get an aggregated and electronic view of the fragmented FX market, get a more realistic and real-time picture of the larger market’s depth of pricing rather than momentary snapshots into specific portions of market data and these advances have cleared the path for automated and algorithmic, rules-based trading to sweep further across the FX market taking with it more mainstream trading firms rather than just a hedge fund elite. Nevertheless rules-based algorithms are still in their early stages and many questions remain on how and why this method of trading has and will continue to gain traction; how...continued

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