The global foreign exchange markets are subject to a wide array of various algorithmic trading surveys. It’s just the way things are with such a well-established sector of the finance industry. This time, the influential research house, Greenwich Associates, gave their survey to the public.
Lack Of Acceptance In FX Exclusively
The US-based research firm had made reports regarding algo trading in particular. Greenwich stated that, after years of stagnation, the prevalence of algo trading within the forex industry seems to be slower to gain traction when comparing other classes, including equities.
In particular, the statistics show that almost every second stock market participant is leveraging algo trading, but only 37% of the buy-side FX trading is done through algorithms. This goes into the volumes as well, as only 22% of the overall volumes in the FX markets is attributed to users leveraging algo strategies.
Slow Adoption Attributed To Lack Of Central Information
Ken Monahan, a Senior Analyst of Greenwich Associates Market Structure and Technology, commented on the matter at large. He explained that the potential stakes in mind would make the adoption of algorithms into a central role within FX a matter of time. According to Monahan, the things that need to be addressed to achieve this, is the overall data scarcity, among other things.
Through the report, Greenwich, a firm based in Connecticut, attributed the low levels of relative uptake of algo trading in FX, as a lack of trade disclosure requirements. Due to this, currency traders are incapable of accessing a form of universal data when it comes to execution and overall pricing. Without this, the algorithms themselves don’t have anything to inform them of equities. As it stands now, many in the FX industry has seen their equity counterparts move into the algo trading business, and many market participants in the FX market have been trying to mimic it. Primarily, they are now making use of second-order hedges instead of alpha generators.
Blatant Inability To Adopt Algo Trading
As a result, a large segment of the FX traders out there are incapable of ramping up their algo trading, even if the potential in risk management and cost-saving would be insurmountable.
When the study probed a bit deeper, it revealed that less than half of all FX traders in their research made use of benchmarks to measure trade performance. This comes in spite of the fact that the transaction cost analysis tools have been steadily increasing. While it’s being used more than ever before in other markets, the FX industry has been slow to adopt, with only a relative few adopting the TCA pool themselves.