Do We Really Need Decentralised Systems?

For all the hype and excitement around distributed ledger technology (DLT), speakers at the Forex Network Chicago conference debated the real value of decentralised systems such as blockchain. “If you’re trying to build a business you need to make it cheaper, quicker, with better customer services and hopefully allow people to have more access. Let’s be honest, blockchain fails on nearly all of those things,” asserted Adrian Patten, co-Founder and chairman of Cobalt. Patten added that the existing system for agreeing contracts has some elements that are beneficial, such as mediation, that decentralisation doesn’t necessarily allow for. By contrast, he described some of the things that he’s witnessed in the decentralised crypto trading space as “bloody scary”, adding: “A lot of these exchanges are being run on laptops and they’re lucky if they have Excel”.
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Which Firms Will Drive the Next Wave of Crypto Adoption?

One of the interesting characteristics of the cryptocurrency markets is that trading in these assets has predominantly been driven by retail players, with proprietary trading firms being the first institutional size firms to start getting involved. So which firms are likely to enter the market next, and will they propel the mainstream adoption of crypto trading? “Naturally a lot of prop desks are looking at the space in a discrete but very active way,” says Francisco Portillejo Hoyos, CEO of CRYPTALGO. “The other wave is that a lot of family offices are seeing a very nice diversification on their allocations.”
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Crypto and FX: More Alike than We Think?

FX industry veteran and Profit & Loss 2012 Hall of Fame inductee, David Ogg, reflected in a recent video interview on how the rapidly evolving crypto markets resemble the FX markets of the past. “It’s like FX in the 1980s,” said Ogg, who is currently the head of FX and trading venues at OTCXN, before adding, “The front-end technology is pretty primitive.” By contrast, he said that OTCXN has developed “cutting edge” technology in terms of how it displays liquidity, offering visual tickers that enable traders to get a visual representation of what is happening in the market with just a glance.
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FX Aggregation: When Less Can be More

There’s an intuitive logic which states that the more liquidity providers (LPs) that a client puts in their aggregator, the better prices they should get. After all, increased competition should cause LPs to tighten their prices in order to win the trade. However, as Roel Oomen, managing director, electronic FX spot trading at Deutsche Bank, explains, this logic only holds up in a static environment, which the FX market most certainly is not. The reality is that LPs alter their spreads depending on how they perceive the liquidity environment to be at any given point in time.
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Why FX is Still “Under-Futurised”

The FX market is still “completely under-futurised” right now, according to Carlo Kölzer, CEO of 360T and global head of FX at Deutsche Börse Group. Deutsche Börse announced plans to buy 360T in 2015 and this deal can subsequently be viewed as part of a broader trend of large exchange groups buying OTC FX platforms. This begs the question of whether these exchanges will try to replicate the “vertical silo” model that they have developed in other markets, whereby they effectively manage to keep customer transactions within their business silo for the entire lifecycle of the transaction by offering pre-trade data and analytics, execution and post-trade clearing and settlement services all in one venue.
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Liquidity in FX: Not All Prices are Created Equal

When clients are looking at prices in an aggregator they could see a bunch of quotes that appear to be identical to one another. But as Roel Oomen, managing director, electronic FX spot trading at Deutsche Bank, explains, this does not mean that the transactions costs for dealing on each of those quotes is exactly the same. This is because rejection rates can vary, the liquidity that’s shown at these quotes can vary, and the risk management style of the liquidity providers (LPs) in the aggregator might vary, with some externalising the risk and other internalising it. But how to tell the two apart?
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The Best of Both: Combining OTC and FX Futures Markets

Paul Houston, executive director, global head of FX at CME Group, talks about practical applications of the exchange’s new FX Link product. Explaining the genesis of the CME FX Link, which was launched earlier this year, Houston says that two years ago the exchange group was looking for ways to attract more people to its marketplace while also increasing the accessibility of its FX futures. A number of different ideas to achieve this were toyed with - such as creating new, shorter-dated contracts - but ultimately, staff at the CME concluded that it would be best to leverage the exchange’s existing liquidity pool.
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AI in Trading: Human Ingenuity on Steroids

One of the key benefits of the use of artificial intelligence (AI) tools for trading is that it can massively enhance human capabilities, explains Andrej Rusakov, CEO of Data Capital Management. “The way I see it is that AI can really put human ingenuity on steroids,” he says. “What I mean by that is that it really allows you to take way more data points into account and find structures in data sources that are impossible for the human eye to spot.” Rather than displacing humans, Rusakov explains that this technology is most effective when it is deployed in tandem with a human understanding of how markets work. When building strategies, his firm uses this understanding of markets and then codifies and enhances them by using AI, and in particular machine learning, tools to find new patterns in different data sets.
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Dispelling Misconceptions About Currency Hedging

Momtchil Pojarliev, deputy head of currencies at BNP Paribas Asset Management, talks about some of the misconceptions that exist amongst institutional investors regarding currency hedging. For example, he explains that in the past, some firms have been unclear on the exact difference between absolute return strategies and active hedging. In the former, the aim is to produce risk-adjusted returns that are as high as possible for a given volatility. The currency manager is allocated a notional amount of funds and can invest in any given currency to try and produce the maximum amount of returns possible.
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Credit, Not Custody, the Biggest Challenge in the Crypto Space

David Mercer, CEO of LMAX Exchange, talks about why a lack of credit, rather than custody solutions, is the biggest single challenge facing institutional market participants wanting to trade cryptoassets. LMAX offers a crypto custody solution through LMAX Digital, and Mercer concedes that having platforms provide custody services is not necessarily ideal from a market structure perspective. However, he quickly adds: If you look at LMAX Exchange’s business model I’ve always been regulated as a broker-dealer and I’ve alway been regulated as an MTF and there’s Chinese Walls between the two.
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