Mon, 01/10/2007 - 07:11
As the role of hedge funds in the foreign exchange market continues to grow, algorithmic trading and technology are shaping the future of the market, according to a white paper issued by FXall, the online foreign exchange platform.
The research paper, which can be downloaded by clicking here, examines how the technology solutions and services provided by foreign exchange electronic communications networks are evolving to meet the needs of this growing and rapidly developing market.
The rise of hedge funds and algorithmic trading in foreign exchange is a key trend identified by the Bank for International Settlements on September 25 in the preliminary results of its latest survey. The bank reported that the FX trading volumes of financial institutions grew by 30 per cent, compared with 11 per cent for reporting dealers, since its last survey in 2004.
FXall's white paper, entitled Algorithmic Trading in The Global FX Market: The Need for Speed, Transparency and Fairness, looks at the implications of this trend for the future of FX trading in terms of the ever more complex technological needs and increasing discernment of market participants in selecting trading venues.
The paper says the foreign exchange market is following a trend now well advanced in the equities market, where the use of automated complex trading strategies has helped fuel the rise of ECNs. Hedge funds are successfully applying algorithmic strategies to FX trading to generate alpha, using many of the same methods they have applied in the equities market and other asset classes.
This trend has injected more liquidity into the FX market - the world's largest financial market. The market is further evolving as participants seek the optimum technology to implement their strategies, fuelling the growth of FX as an asset class in its own right.
Accelor, FXall's anonymous FX ECN introduced this year, is at the vanguard of technology designed to meet the needs of the algorithmic trader, the paper says. The platform provides an anonymous central limit order book that honours price/time priority, the principle that the order entered earliest gets executed first, to ensure a fair market.
In addition, Accelor provides a full order book echo that details every order that is placed and removed from the book, and time and sales information for completed trades. The ECN focuses on speed in placing, cancelling and filling orders as well as distributing market data, while offering the security of knowing executions are within credit limits.
'Algorithmic trading is bringing some key issues in forex trading to the fore: speed, transparency and fairness,' says FXall chief executive Phil Weisberg. 'As e-FX grows in importance, so does the issue of transparency for both market data and business rules. You will have to prove you are operating a fair market.'
Eddie Wen, global head of FX e-commerce at JP Morgan, says: 'In this business, timeliness of execution, transparency and speed of data are king, and we focus on getting our data as quickly as possible.
'We also need to be sure we are trading on the same terms as others. The market should not give special treatment to one segment or type of customers. This is where Accelor really adds its value and is becoming a solid part of our trading strategy.'
FXall is hosting a seminar to present the research paper findings and their importance for the wider FX market on Tuesday, October 16 at 9.30 a.m. at the Penrose Financial offices, 30-34 Moorgate, London, EC2R 6DN. To register, please email [email protected].
FXall is an independent provider of automated trading and workflow solutions for FX and treasury products that aim to deliver improved control and cost savings at every stage of the deal lifecycle by combining streamlined workflow, competitive FX prices and a complete audit trail. FXall, which also enables customers to meet best practice guidelines prescribed by regulatory bodies, has offices in New York, Boston, London, Tokyo and Singapore.
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