Speed is losing its edge in FX
While Aesop was undoubtedly not thinking about currency markets when he wrote the story of The Tortoise and the Hare, low latency FX traders are increasingly realizing that speed does not necessarily equate to success.
In the 1910s, US sportswriter Hugh Keough coined the phrase “The race is not always to the swift, nor the battle to the strong, but that’s the way to bet”. Fast forward 100 years and with so many price discrepancies between currencies across all parts of the world, whoever has the fastest access to quotes will always be well placed. The trouble is that the fragmented nature of the FX market means speed alone is not enough.
Accurate communication among increasingly disparate trading venues is one of the biggest hurdles traders need to overcome — particularly those harbouring hopes of grabbing limited liquidity observes Fraser Bell, chief revenue officer at BSO.
“Emerging markets are seeing a boom in OTC FX derivatives as traders hunt for liquidity, so speedy access to quotes in places like Mumbai or Dubai means new profit opportunities,” he says.
Fraser Bell, BSO
Another challenge is the rising cost of maintaining a speed-related edge, which inevitably erodes profits over time. This has prompted several high frequency traders to change tack over the last 12 months or so, with Virtu Financial acquiring KCG and Teza Technologies quitting its proprietary trading business.