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Foreign Exchange

FXall rolls out routing of algorithmic and limit orders

FXall, the leading multi-dealer platform, has gone live with a service that allows clients to use selected bank algorithms and leave order requests for them to manage.

The move comes amid increasing demand, particularly among corporate and real-money customers, for this alternative order execution method. Banks say there has recently been a pick-up in demand from corporates in particular for algorithmic order execution.

Partly, it is a result of increasing sophistication that has meant they are prepared to take on more market risk, and partly because it provides them with a best-execution tool, which has become important as the focus on transaction cost analysis in the FX market heightens.

Live client trading on FXall started on Thursday as part of a roll-out of the platform’s new trading programme.

Provider banks include Credit Suisse, Deutsche Bank, Goldman Sachs and JPMorgan. Citi and Morgan Stanley are also testing, and full trading capabilities are expected to be available to FXall clients in the third quarter.

“We are pleased to deliver even more tools for our clients to take advantage of as part of their complete trading and workflow processes,” says Phil Weisberg, chief executive at FXall. “We have partnered with leading liquidity providers and our buy-side clients to support their comprehensive requirements for risk management.

“We are increasingly seeing more of our clients willing to take advantage of multiple execution methods and manage their FX risk more actively, so we want to offer them the flexibility to choose exactly what approach will work for specific market conditions.”

Cameron Mouat, head of algorithmic execution for FX and listed derivatives at Deutsche Bank, says he recognizes that his customers have varying execution styles and need a range of execution products, including voice, streaming execution and algorithms.

“Distributing our algorithms through FXall is an excellent channel for us to provide additional functionality to clients," he says.

The rise of algos

The launch comes amid increasing activity in the sector.

Earlier this week, BNP Paribas launched its Cortex iX suite of execution algorithms, which will be available through Cortex, its single-dealer platform and also other outlets.

Indeed, the use of algorithmic trading, widespread in equity markets, is on the rise in FX as the move towards electronic trading quickens.

According to a report released by Greenwich Associates in April, 8% of global market participants used algorithmic trading strategies last year, up from 6% in 2010.

Greenwich says algorithmic trading is beginning to catch on in certain market segments. For example, the use of algorithmic trading strategies increased to 16% in 2011 from 12% in 2010 among the market’s biggest and most active traders – those generating more than $50 billion in annual FX trading volume.

Furthermore, the use of these strategies increased to 12% from 8% among market participants in the UK and to 12% from 10% among US participants, while 20% of hedge funds were using algorithmic trading strategies in FX, up from 14% a year earlier.

Meanwhile, Greenwich says many of the banks it regularly works with are investing heavily in the development of algorithmic strategies for FX, and they expect this product to attract large levels of demand in the months and years ahead.

“As FX evolves into a mainly electronic marketplace, competition is taking place in milliseconds as opposed to minutes or hours,” says Greenwich Associates consultant Peter D’Amario. “In such an environment, algorithmic trading strategies will play a much bigger role for investors and banks.”

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