Greg Malatestinic Member FPL Algorithmic Trading Working Group, Jordan & Jordan
Greg Malatestinic Member FPL Algorithmic Trading Working Group, Jordan & Jordan

FIXatdl - Impact analysis on the Algorithmic Foreign Exchange strategy distribution chain

Broker-dealers have provided equity trading algorithms for their clients for some time now. However, many of the algorithms developed for equity trading such as VWAP, TWAP and Implementation Shortfall are ill-suited for Foreign Exchange (FX). The FX markets are too fragmented and the execution methods of FX are very dissimilar to those of the equity markets. As a result, the growth of FX algorithms made available by broker-dealers and banks has lagged behind those accessible in the equity space.

But now, with the growth of dark pools, things are changing. We are now finding that algorithms which were specifically designed to hunt for hidden sources of liquidity in dark pools scale very well to FX. This is mainly because the market structures that were considered during the development of liquidity hunting algorithms are more in-line with the FX structure. Accordingly, many dark pool algorithms, having been modeled with a fragmented market in mind, are being re-purposed for FX trading.  Prime examples of this are the FX version’s of Credit Suisse’s Guerilla and Sniper algorithms that were released earlier this year. Being second-to-market with a technology can also be advantageous in that the methods and practices employed during the initial role-out have had a chance to mature and be corrected. This is the case for FX algorithmic trading. But it is not necessarily in the modeling of algorithms where this experience can best be leveraged; it is in the integration of these...continued

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