John Galanek COO, FX Transparency
John Galanek COO, FX Transparency

The search for clarity: exploring new frontiers in FX TCA

Transaction Cost Analysis (TCA) is nothing new in the equities space. For more than two decades, most buy-side institutions spent considerable time and resources to measure just how cost-effectively they executed on their stock trades. The reasons why are clear: TCA provides unparalleled insight into the best execution framework and can identify opportunities for cost savings and performance improvement.

First Published: e-Forex Magazine 40 / Leader / July, 2010

Today, nascent demand for that same type of TCA is bubbling up in foreign-exchange markets. In fact, that need for transparency into FX costs is starting to spread to thousands of FX trading firms, especially those that claim to offer world-class trade execution.Of course, recent currency-trading litigation brought against custodial banks has sparked investor demand for more data on FX dealing costs. However, even with high-profile lawsuits and the corresponding link between the benefits of equities and FX TCA, there are several barriers to widespread adoption of TCA in the highly fragmented FX market.Barriers to FX TCA adoption For starters, FX execution quality isn’t on top of many investors’ list of considerations when weighing what will make their investment a success. Typically, their concerns focus on whether they bought the right stock, and did they buy it near its low price. (The conventional wisdom is that if an investor leaves 50 basis points on the table for poor FX execution, it is...continued

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