As the FX trading market continues to experience change at a rapid pace, investors need to update their trading tools and automating processes to keep up. A report by Refinitiv in partnership with Coalition Greenwich analyses the measures investors need to take to help ensure they don’t get left behind.
- To remain competitive in an increasingly digitised FX trading market, investors have been upgrading their trading tools and automating processes to do in minutes or seconds what used to take hours.
- The speed and efficiencies of integrated workflows in the FX space is becoming more and more important.
- A new report from Refinitiv and Coalition Greenwich discusses how firms need to focus on finding the right way to integrate many technologies and consolidating vendors.
For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.
The FX market today is experiencing a rapid pace of change. New algos, execution strategies and the growth of digital currencies are among the reasons contributing towards this.
To remain competitive in an increasingly digitised market, investors have been upgrading their trading tools and automating processes to do in minutes or seconds what used to take hours.
But it’s not enough to automate each step individually.
Our new report with Coalition Greenwich found that while the ability to execute FX transactions at the best price remains important, the speed and efficiencies of integrated workflows will be a greater determinant of trading success.
Based on the market perceptions and expectations of the 81 surveyed FX market professionals for the report, firms will need to turn their focus on finding the right strategy for integrating the many technologies they utilise today and consolidating vendors down to the few that are needed.
Here we look at some of the areas where it matters most.
FX trading is not done in a vacuum
FX stakeholders are displaying an increased appreciation for how all the trade components fit together across the entire FX trade lifecycle.
The industry recognises the economic, compliance and reputational risks of not integrating the phases of the lifecycle.
For both the front and back offices, 46 percent of respondents cited end-to-end workflow as the second most important criteria for an FX trading platform, reinforcing the idea that trading is not done in a vacuum.
Automating processes individually won’t achieve the kind of outcomes one expects from their technology investments.
If the data is siloed and the transfer manual, then the entire process is at risk. That’s why more than 58 percent of our study respondents said they will be spending more time in the coming years automating workflows.
Traders care about how and where trades are executed. Investing in tools that can simplify processes and automate reporting at reduced costs will not only increase a firm’s ability to compete but ensure that regulatory compliance is adhered to.
Evolution of the full end-to-end workflow
As we move towards a more digital era of FX trading, the need to communicate and collaborate in a quick, efficient and compliant way is also evolving at a fast pace. In the survey, 58 percent of the respondents name digitally communicating with their customers/partners as one of their top priorities.
Tried-and-true technologies like email remain dominant tools, but with access to many more tools and wider adoption of working from home, there is a requirement to integrate these flows into the wider end-to-end workflow, and consequently of new compliance tools and oversight of how to manage them.
Watch – Perspectives LIVE: Evolution of FX: Ensuring the trade lifecycle keeps pace with the front office
Using data in the technology strategies of FX trading
While the gaps in process automation are partly a data and communication issue, data acquisition is also key to efficient trading and risk management across the FX trade lifecycle.
In the survey, 61 percent of participants said they buy accurate FX market reference data, because they can’t get the reference data on their own.
When executing a trade, the industry will increasingly need to incorporate data from pre- and post-trade processes to ensure real-time adaptability to market conditions for best execution. Position data, collateral terms, margin postings, counterparty details and other factors need to be accessible throughout the FX lifecycle.
The idea of linking data and processes from multiple systems into a consumable format will be the driver for the FX workflow overall.
The implication of new technologies
The potential for distributed ledger technology (DLT) and tokenisation to alter the market may not be an immediate concern. But it is real. For example, some survey participants view the possibility of atomic settlement extending beyond the exchange of currencies.
Credit monitoring, credit allocations and credit limits are all currently embedded in many FX trades but they are difficult to manage.
Removing credit could encourage more buy-side to buy-side trading, significantly shifting the market structure.
Such tokenisation trends may not be implemented as quickly as other tools for workflow improvement, but they would have a more transformative outcome.
The right fit for keeping pace with the front office
To avoid the challenges of enterprise-installed applications, FX desks will more heavily adopt data management and cloud to improve workflows. They will also seek to consolidate vendors to solve some of the handoff issues within a workflow. That includes processing as much of the flow as possible on one system.
Refinitiv’s Workspace for FX Trading is designed to do just that. This end-to-end trading platform can offer traders interconnected data, analytics, trading workflow and liquidity via various native workflow tools.
Its dashboards and calculators are also highly customisable to traders’ workflow needs and preferences, ensuring they have timely, relevant trading cues to work faster and smarter.
It’s increasingly clear that while important, liquidity is not the only thing that matters in FX trading.
In the future, outcomes will depend on how well each component of the FX trade lifecycle – trading, risk, compliance and settlement – fit together. Front-to-back workflow improvements and greater automation will be the glue that binds them together.