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MiFID II: Like a Swan Gliding Through Water The continued implementation of Mifid II will be generally characterised by lots of hard work in the background and not much immediate action in the foreground, argues Galen Stops. We all know the metaphor of the swan gliding seemingly serenly through the water, while in fact its feet are paddling away furiously underneath and out of sight. Well that swan is a pretty accurate representation of what the January 3 go- live date of MiFID II was like for many market participants, by all accounts. A huge amount of work had gone in behind the scenes to make sure that firms were compliant so that, when it arrived, the big day passed largely uneventfully.
Bitcoin: That’s the Thing That Goes Up, Right? Not so much a price prediction, more a market structure view, but Colin Lambert believes the nature of trading in Bitcoin will change in 2018. If you ever wanted to know the financial markets' equivalent of playing Russian Roulette, look no further than attempts to predict the price of bitcoin going forward. There were not many who saw a decline in bitcoin at the start of last year, but even though there was a consensus that it was going up (and why wouldn't it when you have a limited supply trying to meeting increased demand driven by publicity?), no one remotely nailed the year-end of $16,000. the highest estimate of the price this time last year was probably around $2,000 - and even during the third quarter of the year when it rose past $4,500 no one was thinking a further quadrupling.
The Great Divide Colin Lambert believes data will become a commodity and will generate a divide between the "haves" and the "have nots". There is little doubt that data drives most things in foreign exchange. Pricing is the obvious area, but client business is now also analysed to great depth as service providers seek to more clearly define the value they extract from their franchises. Throw in operating metrics as well as reporting, and data permeates just about every part of the business.
The Human Touch Despite the hype around artificial intelligence and machine learning in an increasingly data-driven environment, Galen Stops finds that humans remain a vital part of the trading process. Intel co-founder Gordon Moore famously noticed that the number of transistors per square inch on integrated circuits had doubled every year since their invention. This observation, which has become known as Moore’s Law, essentially predicts that this trend will continue into the foreseeable future, meaning that computing power will become more and more efficient. Likewise, the acceleration of technology in financial markets – including FX – has meant that these markets have become increasingly efficient.
Drilling for the New Oil If data is the new oil, then how trading firms “drill” it in order to generate alpha becomes increasingly important. Galen Stops reports. So often has the phrase been used recently that it’s in danger of becoming something of a cliché but, apparently, data is the new oil. To see evidence of this, look no further than the technology giants that have emerged out of Silicon Valley. Yes, Facebook doesn’t charge users money for the social media platform it provides, but is it free? Arguably, users “pay” with the data that they create via their interactions on the platform, which Facebook is then free to use and sell to generate profits.
The Franchise Builder? TCA can be about more than measuring execution quality. Colin Lambert talks to a firm that believes it can be the genesis of a new type of bank-client relationship in FX. A TCA report has been analysed and the lessons learned – time to file it away, never to be seen again right? Wrong, according to Andy Woolmer, CEO of NewChangeFX, who believes the data offers a tremendous opportunity to build a new type of FX franchise. “Clients originally used our data for TCA, but it has moved beyond that and it needed to,” he explains. “Too many times the TCA provided to a client was based upon execution from the algo that was used – that circularity represented a problem for the asset manager and, by association, the bank. Why would they want to get involved in something where the trade feeds the analysis?
The Human Problem The wealth of data and predominance of electronic trading mean TCA in spot FX should be a relatively straightforward process. But what happens when a market is mainly voice traded and data is sporadic? Colin Lambert finds out. Among the many upheavals created by the impending MiFID II regulation is the requirement to timestamp all trades in compass of the regulation. In FX markets this has created a paradox, for while it is easy to timestamp a spot FX trade, this product is not “in scope”. FX forwards and swaps, on the other hand, are in scope and they are mainly traded over voice channels and no public central limit order book (CLOB) has enough volume or data to provide a “market” price.
CLS Enters the Market Data Fray Galen Stops takes a look at the new data service launched by CLS Group. In September, CLS announced the launch of its new data service, CLSData. Speaking to Profit & Loss at the time of the launch, the firm’s CEO, David Puth, explained that CLS was “now entering the data market space in a very comprehensive way”. Since its launch in 2002, CLS has recorded every single transaction submitted to it, and considering that an average daily volume (ADV) of over $1 trillion is processed by CLS each day, this represents a massive and rather unique data set.
A Slow Burn TCA in FX has long been viewed as the ultimate box-ticking exercise, but that is now changing as asset owners and oversight functions focus more keenly on the value they leave on the table when hedging their currency exposures. But what, Colin Lambert asks, should good FX TCA look like? Several years ago at a Profit & Loss Forex Network New York conference, the then head of an execution desk at a major Canadian pension fund recounted an experience he had earlier that year. Five weeks of meetings and conference calls had taken place to decide whether or not to sell USD/CAD 500 million, during which time the market had drifted some 200 points lower. Once the decision was taken to sell, another week went by as the method of execution was debated, during which Funds fell another 50 points. When the deal was finally executed,
Data: The Lifeblood of the FX Market Probably the biggest change in the FX market over the past 10 years has been the availability of data. This is not to say that we never had data before, most voice traders relied upon their brokers to tell them where the market was – and although it was (very!) unreconstructed, it was data. In terms of hard numbers on a screen, the market was revolutionised by Reuters terminals in the 1970s, enhanced by the launch of rival offerings (nearly all borne out of a news service), and then again with the launch of electronic trading and mobile apps.