FX Market Looms as Next Frontier for Algorithms to Take Hold
In a few years, currency traders will be hooked on algorithms like their stock-market colleagues.
(Bloomberg) -- In a few years, currency traders will be hooked on algos like their stock-market colleagues.
That’s the view of David Stryker, a principal at consulting firm Greenwich Associates LLC, who sees foreign-exchange markets following equities in the widespread adoption of computerized trading.
While only one in 10 FX traders currently uses algos to execute trades, the adoption rate is higher at the largest institutions, with one in four deploying the systems, according to a Greenwich study released Thursday. In comparison, in equities more than half of volume is done through an algorithm. The firm surveyed 79 currency-market participants at hedge funds, asset managers, corporations and other financial institutions in the U.S. and Europe.
“Given the myriad benefits that algos offer, FX traders currently not using algos (and not considering them) may soon have to determine whether they’re putting themselves at a disadvantage,” Stryker wrote in the study. “With all of the data available demonstrating the benefits/cost savings, the ability to execute a trade with an algo will soon become a ‘need’ as opposed to a ‘nice to have.”’
Almost 60 percent of respondents said algos had materially cut trading costs, according to the survey. The push to save money, combined with stricter regulation, will boost the appeal of trading software, Greenwich concluded.
Scott Wacker, global head of e-commerce sales and marketing at JPMorgan Chase & Co. in London, agrees. He says clients like algos because they can cut costs while allowing traders to better track and report their performance. For investors who already have know-how in equities, ramping up in currencies can happen quickly, he said.
FX algo transactions on the bank’s trading platform rose 47 percent last year, while the number of users climbed 41 percent, according to Richard James, co-head of macro markets execution in London.
“We anticipate that over the next few years, the market for FX algos will look more and more like equities,” Greenwich’s Stryker wrote.
To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net.
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Boris Korby
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