Why are increasing numbers of FX trading firms turning to Big Data analytics?
The need for Big Data analytics is a general trend that applies to all industries, not just finance. Foreign Exchange (FX) trading companies are showing an increasing interest in Big Data as the market is mainly electronic and therefore generates a lot of data. This phenomenon is of course amplified by regulatory requirements which force companies to capture and store data for long periods in order to demonstrate compliance.
Also Best Execution requirements have pushed the FX trading firms to turn to Big Data analytics as they want to rely on their own data, instead of that of third parties, to provide trusted independent reports on their trading practices. In addition, FX trading companies are becoming more sophisticated and are using a lot of algos to improve their trading performance which thrive on analytics to be properly fine tuned. For all these reasons, Big Data analysis is a growing need among our clients and FX trading companies in general.
Is Big Data analytics something that all FX market participants can utilise or is it really of most use to larger players?
Historically large sell side firms were Big Data analytics early technology adopters but in the FX market we observed that even smaller players such as asset managers and hedge funds are also using the same tools. In practice, sell-side are still the biggest analytics users and buy-side are catching-up as both have fiduciary responsibility to provide and prove best prices. The use of analytics is also a way to improve your business’ performance which is a goal that small and large players strive to achieve. Thanks to vendors such as smartTrade, who have a very compelling hosted and packaged Big Data offering, it is easier for all FX market participants to access sophisticated analytics technology.
What technical knowledge and investment is required to leverage the power of Big Data analytics and how much of a barrier is this for some trading firms?
Our mission at smartTrade is to enable firms to focus on their trading business and on creating value while we manage the technology for them. This philosophy has been applied to our Big Data analytics solution, smartAnalytics. No technical knowledge is required as the solution comes with builtin reports and dashboards. For more advanced analytics, our team is available to create and provide customised reports, while our clients with expertise and resources at their disposal will find smartAnalytics a user friendly solution which they can fine tune to their requirements.
What are the key benefits of the smartAnalytics open architecture?
smartAnalytics, like all smartTrade solutions, is built on an open architecture. smartTrade’s platform is modular, flexible and highly adaptable. Third parties solutions can be easily integrated and our clients can export data to external systems. We provide APIs (FIX, REST, etc.) which enable our clients to customize their solution. With the smartAnalytics’ module, we are mindful that we deal with clients’ data and our priority is to comply with regulations such as GDPR so when it comes to data handling we provide clients with the highest security standards. smartAnalytics is a toolset offered by your own company.
What functionality does it offer and how can it assist FX trading firms to gain greater control and transparency over their data?
The stringent regulatory environment, the focus on cost-effective solutions, and the wider use of analytics have all highlighted the need for greater transparency, efficiency and
security across all market segments. Regulations such as MiFID II and its Best Execution requirements have illustrated the need for a robust technology platform to analyse performance across multiple liquidity providers and trading venues as well as to provide evidence of compliance and publishing obligations.
smartTrade’s solutions generate an integrated detailed Best Execution Report for each and every trade that traders can access within their User Interface (UI). They can also retrieve execution details with a snapshot of the available book, the used book, as well as microsecond timestamps for the originating order and all its child orders. Clients can also access reports such as execution statistics (e.g volume by venue and by currency, fill probability by venue by currency or by quote or by order size etc.), tick-by-tick recording, real-time position and P&L by book. smartTrade has put a specific focus on providing additional reports and analytics to allow our clients to further improve their Transaction Cost Analysis (TCA), transparency and trading effectiveness.
Please give us some typical applications that smartAnalytics is being used for by trading firms?
Our clients use smartAnalytics to improve their trading execution. For example buy-side firms can better understand their trading workflows, easily monitor their performance, ensure that their brokers or banks deliver maximum execution efficiency and analyze their Best Execution. Sell-sides can use it to analyse both market side and client side data from volumes and fill ratios to rejection analysis, last look times, costs of rejection, and decay analysis reports. A very typical scenario for our clients using smartAnalytics is to calculate the true cost of trading execution. Instead of the ‘raw price’ shown by your LPs which may not include the cost of rejection or last-look; with smartAnalytics and smartTrade’s smart order routing logic, traders can augment the LPs pricing to reflect a true and accurate cost of trading with each LP. Last look has been perceived as a poor industry practice, where LPs have been accused of cherry-picking their counterparties, but this practice has been hard to prove. Thanks to smartAnalytics, our clients can analyse each of their LPs response’ time according to its final status (Accept/ Reject) and identify patterns proving last-look.
Data can be a very powerful asset. In what ways can utilising solutions like smartAnalytics help to deliver a competitive edge for trading firms?
While smartAnalytics supports compliance requirements such as record keeping, data storage and reporting, the solution goes beyond mere compliance capabilities by providing a tool which allows our clients to gain market intelligence. Our clients have proactively been leveraging their data to analyse and spot patterns and correlations in their trading to improve their execution efficiency. For example, by analysing detailed market and trading data banks can increase revenue by fine tuning their system (volumes & PnL) and anticipating issues before they impact the business (rejections, spreads, last look). Traders can improve their execution flow, detect toxic flow or rank liquidity providers in terms of non-price factors and automatically remove providers with poor execution fill ratios.
Some banks rely on smartAnalytics to offer their clients the ability to download their best execution reports whenever they want (anonymizing the LPs names) offering them a fully transparent service. This solution can also be used for cost sensitive clients who want to keep using a single bank portal while being sure they benefit from Best Execution.
The way their data is secured and can be accessed is of paramount importance to FX trading firms. How do you ensure that your data handling procedures are of the highest quality?
To guarantee that clients environment and data are safe and managed with the highest standard, smartTrade has passed the independently audited SOC 2 type 2 accreditation. The SOC 2 certification provides evidence of the security, availability, processing integrity, confidentiality and privacy of our systems including the way we handle data. In the increasingly regulated environment in which our clients operate, especially since the arrival of GDPR, transparency and trust in their providers is a must-have. We never use or share our clients’ data - the data is theirs and theirs alone. Additionally clients’ data is stored and handled in smartTrade’s private cloud which is completely managed, maintained and controlled exclusively by smartTrade personnel.