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Is data-driven decision making the future of FX trading?

Bart Joris
Bart Joris
Head of FX Sell-Side Trading, Refinitiv

The future of FX trading is inextricably linked with automation. How can innovation and artificial intelligence (AI) improve how firms use data to streamline FX workflow, contribute to best execution and enhance client service?

  1. The FX market has been slower than some of the other asset classes (e.g., equities) to embrace the benefits of automation due to the size of the market.
  2. Market participants recognise that the efficient use of data across the FX ecosystem enables best execution, transparency, benchmarking and speed of execution.
  3. Innovation and AI allow data to be used intelligently to benefit not only individual firms but their clients and the FX market as a whole.

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Data-related issues were cited as being of universal concern among FX market participants in the FX Workspace Survey, commissioned in 2022 to demonstrate the relevance and application of automation in FX markets. The focus of the survey was on the future of financial workflows and on the solutions and capabilities available to enhance them.

A quantitative survey was taken of 600 respondents globally in order better to understand their technological needs and capabilities. Organisation types and individual roles varied, but all respondents used or were responsible for, FX data, apps and/or tools used as part of the trading workflow.

The importance of data: from pre to post-trade

Access to high-quality data can enhance the entire FX trading workflow in a number of ways.

Pre-trade, it can help participants to understand volume flow and when the market is most liquid.

At-trade, driving improved trading decisions can be obtained by feeding benchmark and market impact data into execution algorithms and trading models at the moment of trading, to adjust and optimize the results of execution.

Post-trade, including best execution, has been a major focus of regulators and market participants in recent years. Execution analysis can also be enhanced by the right combination of tools and data management, allowing firms to assess the quality of their execution and identify areas for improvement. Traditionally, the fragmented nature of the FX market has faced challenges sourcing market data comprehensive enough to calculate the appropriate price benchmarks necessary for transaction cost analysis (TCA).

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Improve mundane tasks first

Asked which key tasks could be most improved from access to new tools or ways of working with financial data, trade monitoring and trade execution were cited by 43% and 35% of survey respondents respectively.

Overall, the survey indicated that new tools and systems were most needed to ease these mundane and time-consuming tasks. 53% of all respondents identified delays in data source consolidation with input errors and data access as the most often encountered problems. Delays also occur while data undergoes regulatory and compliance checks and while consolidating proprietary data is consolidated with third-party sources. The need to input data from different platforms also adds to the likelihood of errors.

Smart data, smart people

Looking beyond the mundane tasks, the FX Workspace Survey found that 59% of respondents in sales-focused roles believed that client and venue analysis would benefit most from new tools while sourcing data from vendors took the top spot among quants (75%). Those in tech and IT roles cited the development of models, automation and processes (65%). Though also the rise of the Fincoders (traders/sales with coding knowledge) are clear drivers for tools and better data.

But teams perform better when data and AI techniques are coupled with human insight. New skill sets are becoming increasingly important so that individuals, particularly in trading and sales roles, can use AI and machine learning tools to best make decisions based on market and reference data.

Only 4% of all survey respondents said that they had an expert level of coding knowledge. Unsurprisingly, 77% of respondents in IT and tech roles described their knowledge as expert/advanced. 38% of traders also placed themselves in this category.

However, more than two-thirds of those surveyed described their coding skills as intermediate or lower, although 99% thought that these skills were important or extremely important. The majority of organisations appeared to sponsor programming language training for respondents, rising to 52% for their team and 37% for others in the organisation. This demonstrates the need for workflow tools to translate coding needs in open frameworks accessible to all.

FX Trading Workflows: Leverage a comprehensive, end-to-end suite of trading workflows, market insights, data and compliance tools.

Gaining the edge

Although adoption has generally been slower than in other asset classes, automation is acknowledged to be a force for good within FX markets, catering on different levels to the needs of a diverse set of market participants and jurisdictions around the world.

With increased data volumes and profitability pressures driving greater usage, 44% of survey respondents indicated that they were expected to develop automation skills.

By using data intelligently in the quest for best execution, firms can better service their clients and meet compliance requirements. Ultimately, competitive advantage will be gained by firms deploying the leading tools in the hands of people who understand how to let data, workflow and technology do the heavy lifting.

Workspace for FX has been built on a foundation of machine learning and artificial intelligence to allow users to incorporate Refinitiv data and cloud-based analytics with their in-house data to drive trading decisions within the desktop, Excel or native Python Codebook environment. Customisable to requirements, Workspace offers market participants in different roles the opportunity to use data for their own needs, empowering users across the FX ecosystem.


Why is efficient data use so important for FX trading?

Efficient use of data across the FX ecosystem enables best execution, transparency, benchmarking and speed of execution, benefitting not only individual firms but their clients and the FX market as a whole.