Disclosed trading: building trust and increasing popularity
Posted: 5 February 2017 | Alan Schwarz, CEO, FXSpotStream | No comments yet
Alan Schwarz, CEO, FXSpotStream, tells FX-MM why disclosed trading venues are becoming increasingly popular as market participants seek to improve pricing and certainty of execution in times of market stress…
What is behind the shift towards disclosed versus anonymous FX trading venues?
Since the shock caused by the Swiss National Bank removing the floor in EURCHF in 2015 we have seen an increase in market participants wanting to trade on a disclosed basis with each other, and that has continued through the uncertainty caused by Brexit and the US election.
Partly that has been driven by credit, with market participants wanting to make sure they know who is on the other side of the trade, and also it ensures that market impact, which is a significant issue for all market participants, can be lessened.
Equally, disclosed trading allows for the development of the best possible relationship with your counterparty, both from a price maker’s and a price taker’s perspective. It allows for pricing to meet the price taker’s expectations and allows for the flow a price maker is seeing to meet its expectations.
I don’t envisage seeing the end of anonymous trading venues – there is a time and a place for it – but we have definitely seen a shift towards disclosed trading. In my opinion, market participants need to make sure that within their trading toolkit, they have access to a disclosed trading venue built in. And that disclosed trading alternative should have access to their key liquidity providers with which they would like to trade.
What are the advantages of disclosed trading?
What is helpful about a disclosed trading venue is pricing. In our experience, when market participants know each other – when the price taker knows the price maker and vice versa – and they want to grow that relationship, pricing will improve.