Benjamin Bécar

The impact of analytics and advanced technology on FX markets

May 2022 in Data Management

By Benjamin Bécar, Head of Product Management EMEA at smartTrade Technologies.

Innovation in the field of smart data and artificial intelligence (AI) is transforming today’s FX market. Traditionally, FX has been slower than other asset classes to capitalise on the availability of big data and advanced technology. Now analytics is recognised as an important component of FX trading and the market is waking up to the benefits which a combination of high quality data and AI can offer.

In the face of higher targets, increased competition and slimmer margins, FX trading firms are looking for the ability to make faster, better-informed decisions for themselves and their clients. Not all firms have access to a team of data scientists and quants. However, with AI and machine learning (ML) becoming more accessible to banks and their various business units, they allow for a significant enhancement of FX trading strategies. The availability of these tools is also making it easier for small teams to serve larger client bases more effectively.

The multifaceted nature of analytics

FX market participants use analytics differently according to their user profile. Smart data and AI, applied to different business units and different stages of the trading cycle, can enhance a bank’s performance in a number of ways as well as informing management about operational efficiency and profitability.

With buy-side clients becoming ever more sophisticated in their trading strategies and constantly looking for ways to improve best execution, traders are looking for the best way to engage with liquidity providers (LPs). Traders want to identify the best mix of liquidity venues to source from and consistently get the best deal, as well as to predict customer and market behavior in an efficient and cost-effective way.

The focus of sales teams is their clients: how best to serve them, which to cluster together and how to price them. They also want to establish the best channels to reach these clients with the goal of increasing loyalty and identifying products, workflows and instruments to deliver the best return.
AI and smart data technologies can be applied to pre-trade analysis so that traders can spot patterns and understand market liquidity and behavior and the flow of volumes.

By applying AI technology to FX volume data, it is possible to perform meaningful analysis on a more frequent basis. Traders are able to detect potential price movements and depth of liquidity in order to establish the best time to trade.

Additionally, such systems, thanks to their capturing of a wide range of detailed data points are also able to facilitate investigation of unusual events, which can help compliance and IT support teams provide a superior service to their organisation.

Using AI and machine learning to segment clients and optimize relationships

Banks sometimes fail to recognize that their clients’ business needs are changing and that they may be migrating from one segment to another as a result of their business growing or shrinking. Sales traders dealing with high volumes of transactions and data may sometimes miss important client activity. If it transpires that a client is dealing larger volumes or trading more frequently or looking at different currency pairs, these changes should be addressed and engagement with the client optimized with a view to potentially saving the relationship. By using AI technology to separate clients into clusters, it is easy for banks to identify changes and communicate with their clients accordingly.

Embracing the benefits

High-quality analytics tools such as these offer banks the following benefits:

  • The ability to process vast amount of data efficiently, historical and real-time;
  • New insights about trading;
  • New insights about their clients;
  • The opportunity to develop a deeper understanding of client behaviour than ever before;
  • The ability to react swiftly to new or unusual client behavior.

Better client service through a reliable process

At smartTrade our vision of analytics is holistic: review the past, react to the present, anticipate the future. We are committed to responding to the demand for increased investment in advanced technology and smart data solutions by automating smartTrade Analytics with our LiquidityFX trading solution. Our deep domain experience in FX means that we understand the needs of banks as they strive to optimize their trading and distribution businesses to generate the best returns.
By presenting actionable outcomes, our goal is ultimately to help our customers have a higher quality of interaction with their clients and also increase volumes and revenues for the bank itself.
The process can be summarized as follows:

  • Capture and store high-volume, high quality and normalized data;
  • Analysis of historical and real-time trading data;
  • Proprietary machine learning and artificial intelligence technology that profiles the behavior of their clients, the market and LPs;
  • Highlight business-impacting signals to a bank’s sales team, flagging up such factors as changes in dealing direction, pricing and product requests and frequency of trading;
  • Present actionable outcomes to help sales and traders increase business value.
  • Our recommendation engine suggests actions such as pricing changes, product suggestions or simple client communication.

    Contact smartTrade to learn how we can deliver advanced business and technological insights to optimize your trading and distribution business with our smartTrade Analytics solution.