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Trading: Answers to the problem with FX

Last month’s cover story received a lot of feedback. It seems sell side is in a state of flux and running scared of algorithmic trading.

The FX debate – a response from RBS March 2006


It seems that participants in the foreign exchange market have a slightly different view of algorithmic trading to those in other asset classes and products. Generally, algorithmic trading in cash equities and futures refers to a type of programme trade designed to achieve better execution. FX players seem to use the term to describe most aspects of programme trading but especially arbitrage in the form of what used to be disparagingly referred to as sniping.

The overwhelming view expressed following last month’s Euromoney cover story, “The problem with foreign exchange”, suggested there is very little support for the idea. This should not have been too surprising, given that the one being touted is effectively a big-boys only club. But the feedback received suggests there was a consensus with the view that the market has been the author of its own problems, even if that acknowledgement is reluctant. More than one respondent said that there was no liquidity problem in FX, just a problem of liquidity at a specific price.

With spreads now eroded almost to the point of non-existence, it is unlikely that the big liquidity providers will ever be able to widen them out again.

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