Applying real-time trading analytics for achieving improved TCA in FX

TCA is still nascent in the FX environment but as Dan Barnes discovers, it has the potential to leapfrog development stages found in equities.

Transaction-cost analysis (TCA) offers buy-side firms a better understanding of their execution quality. Typically it operates by taking key data points such as the price and time of trade execution for a fund and setting those against a benchmark of other funds’ trading data to create comparative performance charts. But these services, that have been pioneered in the equities market, face some fundamental challenges in FX not least because it is predominantly an over-the-counter (OTC) rather than venue based model of trading. “Fifteen years ago there was no need for TCA because everything was on the phone; your base price was 70-71, if the client told you he wanted to buy it you told him 75, so four pips were yours. You could achieve this by an activity-based costing approach or by a looking at the unit costs,” says Ralf Behnstedt, managing partner of FX Architects. “With the advent of electronic trading over the last couple of years, where you have multiple liquidity providers and...continued

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