Nicholas Bang Advanced Currency Markets
Nicholas Bang Advanced Currency Markets

Getting to grips with Pricing mechanisms

Nick Bang reviews the latest types of pricing system available to client groups and the benefits they can get from pricing delivery systems.

As foreign exchange execution needs of market participants continue to evolve, pricing mechanisms must follow suite. Currently the buy side essentially uses two methodologies to trade foreign exchange, request for quote (RFQ) and executable streaming pricing (ESP). RFQ still remains the most popular means of execution but more sophisticated clients needing one click dealing via execution front-ends or straight through processing (STP) integration are popularising fully streaming execution. This new ESP model not only offers swifter execution but most importantly offers greatly increased price transparency and efficiency which was up to now unavailable to the buy-side.The majority of foreign exchange volume is transacted by about 10 to 15 very large banks offering both RFQ and ESP dealing mechanisms. These major liquidity providers effectively control how orders are transacted in foreign exchange and via broker-dealers the same type of execution can be delivered to the retail foreign exchange trader. To...continued

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