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Accelerating innovation in FX market drives efficiency

Francois Lamy
Francois Lamy
Strategy Director, FXall

Use of innovative workflow solutions is accelerating in the FX market, driving efficiency gains and improving trader productivity.

  1. In the wake of the COVID-19 crisis institutional traders turned to technology to help them be more productive from their remote or virtual work environment.
  2. Use of efficiency-focused workflow solutions will grow even further as the buy-side continues to focus heavily on operational efficiency and trader productivity.
  3. Complementing an already-rich workflow suite, including auto-execution capabilities, FXall launches new features giving traders greater flexibility and control over the staging and execution of their FX orders.

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As we documented last year, in the wake of the market volatility of March 2020 the buy-side relied more-than-ever on innovative technology solutions to handle the increase in FX trading activity.

The industry’s focus on operational efficiency was heightened by traders’ transition to a remote or virtual work environment where they had to “do more with less”, constrained by more technological and operational hurdles than they typically face on the trading desk.

In FX trading, like many other industries and sectors, the COVID-19 pandemic significantly accelerated the adoption of digital tools; and in the case of institutional FX traders, driving the adoption of electronic means of collaboration and trade execution.

Looking at data from Refinitiv’s FXall platform, we see this trend carry over and accelerate into 2021. We expect usage of efficiency-focused workflow solutions to continue growing, even as more countries emerge from lockdown and traders return to the office.

In a market of increasing automation, liquidity fragmentation, and evolving regulations, FXall gives you seamless access to rich data and smart tools

Activity levels remain high in the FX market

While the market volatility of last spring quickly subsided, and continues to trend lower since the November 2020 U.S. presidential election, activity levels remain high in the FX market.

FX volatility. Accelerating innovation in FX market drives efficiency
FX volatility quickly declined after its March 2020 peak, as seen here in the Deutsche Bank Currency Volatility Index that tracks expected volatility in the FX market. Source: Refinitiv Workspace

Multiple FX platforms have announced new record trading volumes in the first quarter of 2021. Refinitiv’s FX platforms Matching and FXall, now part of the London Stock Exchange Group, jointly reported average daily volume of $490bn for the month of January 2021, the second highest monthly average since reporting began.

Refinitiv also announced a new daily trading record with $680bn traded on 27 January (the previous record of $644bn having been set during the market turmoil of March 2020).

Whether the market sustains these activity levels or we see a drop-off in volumes, we expect continued growth in usage of workflow solutions that enable traders to more efficiently handle large amounts of orders, and then execute them with the flexibility required to achieve the trader’s objectives.

According to JP Morgan’s fifth annual e-Trading survey, workflow efficiency is the second most urgent priority for institutional traders, only trailing access to liquidity – and understandably so, since workflow is such an important lever for achieving efficiency gains and increasing trader productivity.

Greater automation and operational efficiency

FX trading platforms are increasingly differentiating themselves based on the quality of their workflow, while buy-side institutions are carefully vetting and partnering with those platforms that can accelerate their digital transformation and journey towards right-sized and more productive trading operations.

Among other efficiency-focused workflow solutions, FXall’s auto-execution capabilities enable institutions to automate all or portions of their trading activity.

Using this highly customisable framework, traders can automate the execution of orders for certain currency pairs or notional amounts (among other criteria), allowing them to focus on more complex orders, including higher market impact orders, those larger in size or in less liquid currency pairs.

All orders subject to auto-execution, based on the criteria set by the trader, then get executed at the best price secured from a panel of liquidity providers, ensuring best execution requirements are met.

FX volumes executed using FXall’s auto-execution workflow increased by 168 percent year-over-year in January 2021, continuing a strong growth trend that also saw a record number of institutions use the feature for the first time over the past 12 months.

FX volumes executed using FXall's auto-execution workflow. Accelerating innovation in FX market drives efficiency
Source: FXall

FXall gives buy-side traders greater flexibility and control

Further expanding a deep suite of workflow capabilities, FXall recently launched several new features that give traders greater flexibility and control over the staging and execution of their FX orders.

With the ‘Fill Now in Competition’ feature, traders can cancel the execution of an algo order that is already in-flight (if warranted by price deterioration, for example) and immediately execute the remaining unfilled amount via multi-dealer RFQ. Or they can execute the remaining amount using a different algo from a different provider.

In addition, traders on FXall can now split one order into multiple smaller orders that can be traded using different execution methods and across multiple liquidity providers.

This arms them with the flexibility to progressively work an order, and to use the execution methods that are most likely to achieve their objectives (whether minimising market impact and capturing spreads with a passive algo, or getting the trade done quickly with an RFQ, to name just a few examples).

“The flexibility of a trader’s order staging and execution workflow is critical to execution quality,” said Jill Sigelbaum, Head of Refinitiv FXall.

“The management of market impact and information leakage during the trading process continue to be top-of-mind for the industry, and with our recent workflow enhancements we are giving buy-side traders additional tools to achieve their objectives.

“This is another milestone in our delivery of solutions that empower traders to make smarter trading decisions and minimise execution costs”.

In a market of increasing automation, liquidity fragmentation, and evolving regulations, FXall gives you seamless access to rich data and smart tools