Firms are increasingly demanding more sophisticated tools around FX execution analysis, explains Petra Wikström, global head of execution and alpha solutions at BNP Paribas.
Wikström says that for some time, firms have been looking at post-trade analytics to help improve their FX execution but that, increasingly, they are shifting their focus towards pre-trade analytics.
“Now a lot of the demand is coming in the pre-trade understanding of market impact: how it trades over the trading day across currency pairs, across time zones, across trade sizes, but also coming into that are whether there any differences across different venues,” she says.
Wikström explains that although at the CIO or portfolio manager level a broad picture of liquidity conditions across the trading day might be sufficient, at the trading desk level firms need tools that will provide them with a more granular view and show them, for example, the different impacts caused by using a more aggressive algo versus a more passive, adaptive one for their execution.
Although Wikström says that the smaller an order gets, the less important the execution style for that order is, she insists that this “doesn’t mean that one solution fits all”.
She adds: “It might be that you have an underlying alpha view and you don’t want to take that much price risk, because you feel that the price is going to go against me. If you don’t have a view over the long run, you could expect it to cancel out and therefore you’re saving on the market impact.”
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