FX buy-side increased algo usage by 14% in 2012, survey finds

By:
Russell J. Dinnage
Published on:

There is a growing addiction to speed and transparency within the trading activities of the FX market’s buy-side as the use of algorithmic tools increased by 14% in 2012, according to a survey by technology vendor StreamBase.

The fourth annual StreamBase FX Trading and Technology survey of 240 institutional FX traders this year found that buy-side market participants increased their usage of algorithms from 34% in 2011 to 48% in 2012.

The use of multi-bank FX trading platforms among the buy-side companies also increased this year by 17%, while single-bank platform usage grew by 7%, the survey says.

Cultivating electronic trading systems that emphasize speed in best execution remains the holy grail for all the buy-side participants surveyed by StreamBase.

Organizing those systems around infrastructure that allows for access to low latency sources and the integration of different feed formats from multiple liquidity providers remain the key challenges, the survey says.

"The challenge is to make the architecture flexible and scalable enough to manage multiple liquidity providers, and develop and deploy algorithms and risk metrics according to changing market conditions," says StreamBase chief technology officer Richard Tibbetts.

The StreamBase survey found that many buy-side firms still value building and maintaining long-term trading relationships with their clients over developing cutting-edge technology systems.

Around 25% of the buy-side FX market participants surveyed by StreamBase do not use algorithmic trading systems and have no plans to do so.

Nevertheless, the sell-side of the market is banking on an algorithmic future.

The StreamBase survey found that around 54% of the participating sell-side firms say they are planning on improving or adding real-time FX liquidity management tools to cater to client demands.