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Searching for the bank algo traders

I was having a coffee with someone from the ‘dark side’ recently who asked if I’d ever wondered what had happened to all the bank algo traders. His assertion was that a lot had decided to quit their positions and set up on their own this year after not being remunerated as well as they thought they should have been.

Initially, my response was to ask why that should be an issue. After all, he himself admitted that all the banks that had seen such staff defect would be able to replace them and that, ultimately, there would be little long-lasting impact on their FX businesses. However, his next point got me thinking.

Much has been made over recent years of the emergence of a new breed of market makers and the impact they have had on liquidity. This is a topic that is still raging. Many banks dismiss the high-frequency algorithmic traders as irritants. In fact, they have had a profound impact in many ways, but the once common belief that they would erode the banks’ ultimate hold on market making has not been born out, perhaps mainly because most of them can only quote prices when they know where the market is.

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