Algo: No longer a four-letter word
Algorithmic trading in FX is rapidly evolving. Until recently, if you said someone did it, you were effectively using an extremely rude four-letter word. Now, it seems that the term has reverted to the original meaning it had in equities: a sub-set of programme trading designed to gain better execution.
Algos have had a huge impact on equities and it has been widely predicted that their use will grow rapidly in FX. However, because the two markets are very different in many ways, I have at times been extremely sceptical. Perhaps the main differences are that FX is generally a principal business, liquidity is good and that the main liquidity providers do not display full order books (see EBS story below); also the buy side is extremely reluctant to pay for anything. Many are likely to take the view that there is no need to pay for better execution when generally it’s already excellent.
Credit Suisse, one of the leading providers of algo trading solutions in equities, is now pushing its models to its FX clients. The rumour is that it is charging around $75 per million traded. At first glance, this looks extremely expensive and it’s hard to see who want to pay such a price to gain a better execution.