GFI has confirmed that one of its US-based clients executed an algorithmic trade in late May; since then, the client has traded algorithmically on numerous further occasions.
GFI says that it added a FIX-based API to its ForexMatch platform in April. The bank that did GFI’s first algo trade, believed to be in a short-dated G7 currency pair, is then traded the option’s gamma through its algo on to various spot platforms.
Paul Millward, products manager, FX options trading at GFI, says that several other banks are currently testing the API. “At the moment, we think it will be used for mainly vanilla options. We think that potentially it will lead to an increase in liquidity and that it will follow the same model as the spot market.”
Although GFI is the first broker to announce an algo option trade, Larry Rosenshein, chief operating officer of TFS-Icap, says it also has clients trading through an API. “Clients can access our Volbroker platform via an API. We have been trading with a client [bank] algorithmically via our API for the last few months in different currency pairs including AUD/USD, EUR/USD, USD/CAD EUR/JPY and EUR/GBP to name a few. We also have several others clients in the pipeline. We simply chose, at the client’s request, not to make this public.”
Tullett Prebon, which recently added FX options to its TradeBlade system, is also looking at adding an API to its platform: “We are writing an API that will allow banks to strip out our prices and commingle our best rates with those from elsewhere on their own, in-house platforms. This will then level the playing field but will hopefully increase efficiency and hence volumes,” says a Tullett source.
To an extent, the brokers are simply playing catch-up with their bank clients. Options have been available through APIs on some platforms, such as UBS’s FX Option Trader, for some time.
According to Ian O’Flaherty, global head of e-commerce for currencies at Deutsche Bank, some care has to be taken in defining what an algo trade is. “Algorithms can be used to generate signals and/or execute a trade. The algorithmic creation of a signal that indicates relative value has been around quite some time in FX Options. What seems to be new in this case is the electronic distribution of that signal or interest into a venue, something that the FX cash market now takes as routine,” he says.
O’Flaherty adds that most clients would still prefer to execute orders through a GUI. “When a client trades on a vol price he agrees the spot, swap and therefore premium on the trade; this presents a challenge for a truly streaming vol price. If you trade on a streaming price via an API, the client probably has to give up that right. Our clients regularly use models that create signals and they trade via the GUI, which they like. It has great functionality and flexibility versus an API.”
