New research from Greenwich Associates shows that long-term investors corporate end-users are turning to algorithms in FX trading.
The report from Greenwich, Long-Term Investors Embrace FX Algos, shows how an increased focus on best execution and the growing use of transaction cost analysis (TCA) are fuelling the adoption of algorithms in FX markets.
“As a more diverse set of market participants competes for liquidity in currency markets, longer-term FX traders are beginning to appreciate the value that algorithms provide in terms of control, anonymity and performance,” says Richard Johnson, vice president of market structure and technology at Greenwich Associates and author of the report.
Greenwich says that FX algorithms are used by more than a third of the biggest institutional or “real money” fund managers active in global FX markets, and by almost a quarter of the biggest corporate FX traders, which it categorises as fund managers and companies generating at least $50 billion in annual trading volume.
The firm says it also expects algo usage to steadily increase over the next three to five years as pending MiFID II regulations and the FX Global Code of Conduct place even more emphasis on best execution and prompt more market participants to employ TCA and similar analytic tools.
Almost a third – 31% – of institutional asset managers now use TCA as part of their trading process, Greenwich says. With so much FX volume executable electronically, these investors are more frequently turning to trading algorithms to help them apply the insights provided by TCA and, ultimately, improve investment performance.
“Execution algorithms allow traders to automate their flow, intelligently access a greater number of liquidity pools, control market impact, increase spread capture, and minimise information leakage,” says Johnson.