Finance Hive Insights


Welcome to our Insights page. Here you will find a selection of interviews, reports and surveys curated for our members, by our members.

FX London Series: Algos Report


We asked 80 head traders how their trading strategy changed during high FX volatility in Feb/March 2020:
Stayed the same31%
More high touch60%
More low touch9%
David Byne from Northern Trust summarises the Algos discussion from a recent meeting of our West Coast members:
A checklist of key findings from an intimate meeting of European Head Traders:
  • Justifying the explicit costs of using algos can be challenging for those that are looking to scale up use
  • Curated liquidity pools and the ability to adjust algos in-flight are important selection criteria
  • 5 algo providers are leading the pack when it comes to in-flight customisation:
    • BAML
    • JP Morgan
    • BNP Paribas
    • Goldman Sachs
    • Morgan Stanley
  • Benchmarking against risk transfer prices can be challenging. You are unlikely to be able to reliably estimate a price for the full trade
  • There are concerns around ECNs in liquidity pools so curating your liquidity is important
  • For those not using algos, deciding which provider to onboard first can be a challenge as not all funds may have access to enough relevant data
  • Algos for Swaps and Forwards could be coming sooner rather than later
  • Rules-based smart order routing is a goal, but getting the resources to invest is difficult
  • Users that normally trade large sizes through algos have reduced this threshold due to liquidity conditions this year
  • Removing ECNs from flow has led to significant improvements
  • Some participants increased their algo use among high volatility, and some used them less.
  • Algos can be used to limit spreads in volatile markets, or find liquidity in Emerging Markets at traditionally illiquid times
  • Start off using a small number of algos and build up data on them so you can see how they are working
  • Consider a traffic light system for your panel:
    • Green – signed off, compliance approved and to be used at will
    • Orange – Use with caution. These are algos you are testing or trialling
    • Red – Something has gone wrong. Don’t use the algo and make sure the provider explains what went wrong and why it wont happen again before moving back to orange (or not!)
  • TCA on algos needs to be carefully considered – how are you going to break up trades and how are you going to measure this?
  • You need to justify inflight customisation in flight by writing a framework for when and why you intervene. Doing so retrospectively is a challenge as getting accurate and relevant data is not easy
  • Pre-trade analytics can help you explain why and how you use algos