Nicholas Pratt
Nicholas Pratt

Trading on Aggregated Liquidity: overcoming FX market fragmentation

Liquidity aggregation has become a vitally important trading tool for buy-side FX firms. The decentralised, segmented and over-the-counter nature of the FX market means that liquidity has always been dispersed but in the last ten years the number of sources from where liquidity can be sourced has increased enormously. Consequently the importance of liquidity aggregation solutions – tools that enable FX traders to view all of the various sources of liquidity on one screen – has increased accordingly. This has obviously led to an increase in the number of solutions being developed and made available to buy-side firms.

First Published: e-Forex Magazine 33 / FOCUS / October, 2008

According to Jake Smith, senior vice president and head of marketing at FX exchange FXMarketSpace, FX is a highly fragmented market where dealing at best price is a time consuming process. “Aggregation services allow customers to easily access a range of different liquidity streams including bank APIs and those from trading platforms or ECNs.  The cost of aggregation services can be offset by customers spending less time searching for prices and being able to demonstrate best price.  In addition to best price, they allow for the detection of depth of market, combining liquidity from different sources.” Jake Smith “The cost of aggregation services can be offset by customers spending less time searching for prices and being able to demonstrate best price.” Aggregators also allow for ‘smart order’ routing, where all venues can be continually observed to determine where the best market opportunities lie, says Smith. “When an order is executed the...continued

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