FX: TCA use creeps up but benefits still evolving
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Foreign Exchange

FX: TCA use creeps up but benefits still evolving

The impact of transaction cost analysis (TCA) on the FX buy side remains hard to quantify, despite the relative maturity of the technology.

Research published by Greenwich Associates and based on interviews with buy-side traders around the world indicated that 58% of FX trading desks were using TCA systems.

The research found that FX TCA was ahead of fixed income in terms of buy-side adoption, driven in part by a more easily accessible data set for analysis and the increasing usage of algorithmic trading and electronic trading venues.

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John Halligan, Global
Trading Analytics

Yet Global Trading Analytics (GTA) president John Halligan suggests that the rate of deployment of TCA by FX market participants has not been particularly rapid, although he also accepts that investment in the technology is increasing.

The uneven quality of the product calls into question whether the promised cost reductions and trading certainty have been realised, says James Singleton, chairman and CEO of Curex.

“The jury is certainly out on measuring market participants’ use of TCA analysis to improve their executions,” he says. “Some have, but we assume that number to be small at this point.”

More widespread use of such analytics ought to result in more optimal execution performance over time. A move to fee-based orders should be providing more certainty around explicit costs, although it is important to also analyse implicit costs – such as market impact – and take an holistic view of overall performance rather than simply focusing on fees, observes Pete Eggleston, co-founder of BestX.

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