Barclays Capital has decided to add algorithmic trading functionality to the front end of its Barx foreign exchange trading platform. The bank made its PowerFill service available to clients on its GUI on September 18. Having crossed over from other asset classes, algo trading has been a hot topic in the FX market for about 18 months. The market seems to have an ambiguous approach to the topic, with algos being blamed for such problems as latency arbitrage and prices gapping, but also lauded for the extra liquidity they have brought. Barclays’ decision to provide algo functionality on its GUI looks designed to expand the use of algos, even if it does seem slightly outdated given that many market participants on both the sell side and buy side are already actively using them.
However, one trading system vendor in the equity and futures space says that the Barclays offering should prove popular, if those markets are any indication. He says different users look for different levels of functionality from algos. “There are basically three tiers,” he says. “The first, basic level is the pre-programmed strategies that are supplied by vendors. The second are those provided by brokers, which they charge for, and the third level is the models developed and used by buy-side clients themselves.”
Barclays’ PowerFill falls into this first category. “The idea behind releasing a GUI version of PowerFill first is so clients can have a very transparent system of familiarizing themselves with the effects of our execution algorithms and begin to think how best to split up their orders. We anticipate that clients will wish to automate that process and will provide that functionality in the next release,” says Ivan Ritossa, head of FX at Barclays Capital.
He adds: “We have a dedicated team who tune our algorithms. We depend on the exact same algorithms internally for our trading and constantly update them to reflect changing market conditions. We believe that most clients do not want the overhead of building algorithms but they do want more control of their execution. PowerFill gives them control over the speed of their execution. This is the key to managing transaction costs.”
Barclays says that PowerFill will trade on both Barx and other external liquidity pools to which the bank routes orders. “This gives the best of both worlds with more execution control than any other environment,” says Ritossa. “Our algorithms range from sourcing $200 million in one slice to minimal market impact strategies. They also operate well in illiquid pairs such as GBP/JPY that don’t have a deep external liquidity pool.”
Sean Gillman, chief technology officer at Currenex, which unveiled its SmartOrder algo platform in May, agrees that having algorithmic functionality available via a GUI is welcome if it introduces the concept to end users. However, he says that many will ultimately shy away from such an offering.
“There’s a problem as far as clients are concerned if their algo model is hosted by a third party. Most funds are very concerned about alpha leakage and therefore want to keep their models as secret as possible. There is a market for hosted execution models, but funds want to be able to tune these standard execution models and sometimes design their own. At the moment in FX, the traditional fund managers haven’t really started using algos. That’s likely to change, and when it does they’ll want to host their own proprietary algorithmic models themselves. Many players from the hedge fund community are already doing that through APIs and FIX connections,” says Gillman.
