Pete Eggleston Co-Founder of BestX Ltd
Pete Eggleston Co-Founder of BestX Ltd

Best Execution in FX - do Algos have a role to play?

The use of execution algorithms in the currency markets has increased significantly over recent years and it would appear that this trend is set to continue for the foreseeable future. In this article Pete Eggleston, Co-Founder of BestX Ltd explores the potential benefits and pitfalls of using algorithms within an execution process.

Algo Types Before we investigate the benefits and pitfalls of using algos, a brief overview of the range of algos now available for FX should be helpful. Although there are now well in excess of 100 different FX algos available on the main multidealer platforms, this universe can be simplified into a number of broad categories as illustrated in the diagram overleaf. There are, however, different dimensions to how an algo should be characterised, for example: •  Algo style •  Liquidity source •  Liquidity interaction So, any given TWAP algo could be very different to another TWAP algo depending on the liquidity sources it has available to it and how it interacts with this liquidity. Categories of FX Algorithm Benefits First we’ll review the potential benefits of including algorithms in your menu of execution options, which are summarised below. 1. Cost reduction Using an algorithm can result in significant transaction cost savings, although there...continued

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