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Foreign Exchange

Liquidity-hunting algos the next big thing in FX NDFs

Other players are expected to follow Goldman Sachs and BNP Paribas in introducing algos designed to source both internal and external liquidity for FX NDFs, despite limited liquidity in many non-deliverable currencies.

How to tap liquidity in non-deliverable forwards (NDFs) has been exercising the minds of FX houses this year. In February, Goldman Sachs introduced a smart algo for accessing internal and external liquidity NDFs. Four months later, BNP Paribas went live with its first NDF algo currency pairs (USD/INR and USD/KRW).

According to Ralf Donner, head of client FX algos at Goldman Sachs, there has been a consistent demand from clients – particularly in Asia – to trade NDFs in the same way as deliverable currencies.

“The most commonly traded currencies are USD/KRW and USD/INR to the 1-month date, with USD/TWD and USD/IDR also offered,” he says. “Our focus is extending the product range to provide all algo styles from TWAP [time-weighted average price], to sweep-to-fill, to the most passive execution.”

Asif-Razaq 160x186

Asif Razaq, BNP Paribas

Asif Razaq, BNP Paribas’s global head of FX algorithmic execution, says that clients can see the cost benefits of using execution algos for deliverable currencies compared to trading against a traditional risk transfer price. Unsurprisingly, therefore, they want to be able to trade non-deliverable currencies the same way.

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