Anna Reitman
Anna Reitman

Taking a more systematic approach to FX algo selection

As firms increasingly access electronic execution for FX, the right decisions for deploying and selecting algorithms are, as Anna Reitman discovers, a combination of getting knowledgeable about market technologies and tapping into the lessons of traditional wisdom.

For those interested in becoming familiar with the world and language of FX algos there have been some lessons to learn from other asset classes who are ahead of the curve. Mark Goodman, head of Electronic Execution Services in UBS’ FRC division, said: “Algo usage becomes a wave that everybody rides, and if we look at the equity world you see some slight pull back from that at some point, which suggests that people get on board and overuse a new solution.” Developing an algo usage, or non-usage, strategy is ultimately a trade-off between time risk and market impact, Goodman explained, pointing to events like Brexit or the recent US election as examples. In such volatile conditions, clients may favour immediate risk transfer over “wearing” the time risk. There’s also the maturity of the algorithm market itself to consider, he added: “Algos are still relatively new, so in times of stress people go back to the old ways of trading.” But...continued

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