Nicholas Pratt
Nicholas Pratt

Tactical FX trading algorithms: maximising alpha and minimising footprint

The FX market is very different from the equities market but there have been many similarities in the way that trading technology has developed in both asset classes. However, as Nicholas Pratt discovers, it remains to be seen if the use of tactical algorithms will translate over from equities to FX. For example, how will tactical trading algorithms be deployed to intelligently navigate difficult and less liquid market conditions while retaining low latency? What kind of tactical algorithms will prove most popular with all of the different types of FX trading firms? And just how much can the FX market learn from equities and other asset classes in terms of using tactical algorithms?

First Published: e-Forex Magazine 41 / Algorithmic FX Trading / October, 2010

Algorithmic trading is well established in the FX market but is still some way behind the equities market in many regards, especially in the use of the more sophisticated and advanced tactical algorithms. Such algorithms have evolved in the equities market as an alternative to the more simplistic schedule-based algorithms, such as volume-weighted average price (VWAP) and have enabled more opportunistic traders with very specific trading strategies to take greater advantage of market inefficiencies or anomalies and to generate alpha.   Bloomberg Tradebook has extensive experience in developing tactical algorithms from as far back as 1998 when it created a series of trading algorithms for use on the US equities market. “We came out with algorithms like trigger trading, pegging and discretionary trading,” says Gary Stone, Bloomberg Tradebook’s Chief Strategy Officer. “This was the first time that these tactical features were applied to trading algorithms. We then brought a lot...continued

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