Laurie Berke Senior consultant with TABB Group
Laurie Berke Senior consultant with TABB Group

Just what is Best Execution in FX? And how do algorithms achieve it, if indeed they do?

Best execution in the FX markets is an ephemeral beast. It’s unclear just what it is, and no one claims to have determined what it actually looks like. The currency marketplace operates in the dark, with a lack of transparency and clarity with reference to its price discovery process. Today that’s all begun to change, and pricing and liquidity are coming into the light.

Despite its unregulated and over-the-counter structure, FX markets have set out on a rapid charge down the electronic pathway toward direct market access and displayed pricing, behind such distinguished asset classes as equities, listed equity options and exchange-traded futures.  Less than a decade ago, most FX trading was still being done trader-to-trader over the telephone, but by year-end 2007, TABB Group estimates that as much as 70% of currency trading in the top 10 most liquid markets was being executed electronically.   The widely quoted Bank for International Settlements report of September 2007 showed daily traded FX volume increased from $1.88 billion in April 2004 to $3.21 billion in April 2007, for an eye-popping 71% increase over a two-year period.  The BIS report includes trade data only through the spring of last year and was released too early to capture the impact of the global debt crisis on currency trading volumes.  In the next BIS report we will no doubt see...continued

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