How are currency investors using technology to optimise trading?

5 February 2017  •  Author(s): David Vincent, CEO, smartTrade Technologies

How are currency investors using technology to optimise trading?David Vincent, CEO, smartTrade Technologies, explains how currency investors can leverage technology to optimise their trading operations and meet the regulatory obligations.

How can currency investors optimise their access to FX liquidity?

The most significant change in the FX market in recent times has been the increased diversification of sources of liquidity. In the past it was sufficient for currency investors to have access to a very small number of liquidity providers, usually banks, in order to meet all of their requirements. Liquidity is now spread more widely amongst new trading venues and new liquidity sources, such as non-bank liquidity providers. It has also become shallower due to regulatory, credit issues and competition.

There is a real need in the market for currency investors to optimise their access to liquidity as a consequence. This can be achieved by leveraging technology.

Successful trading, with a low latency execution speed, cannot be achieved manually. This is why currency investors need to adopt advanced algorithmic smart order routing. Technology providers, such as smartTrade, provide out-of-the-box strategies including sophisticated sets of execution rules to decide which trading venue(s) or liquidity provider(s) is/are optimal for trade execution.

Advanced smart order routing, is not enough as investors also need to incorporate big data analysis. By using big data analysis, currency investors can achieve a 360 degree view across their liquidity and the way it is provided to them.

This combination of smart order routing and big data analytics gives investors an intelligently automated method to find the liquidity provider that is best adapted for them based on certain parameters, such as market impact, slippage, and rejection rate.

What factors should investors take into account when connecting to a trading venue?

First, investors must consider which liquidity providers are operating on the venue and whether they match their risk appetite. Investors must also question whether the trading venue adds anything new to their existing range of liquidity sources. If an investor connects to too many trading venues, their flows are going to be much more complicated to manage and the relationship with each liquidity provider will be diluted. There must be added value in connecting to a new liquidity source.

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