FX Algorithmic Trading Sees Threefold Increase, Signaling Change in Trading Methods

Algorithmic trading is becoming more popular in foreign exchange markets as big investors use automated strategies to handle dispersed liquidity and narrow price differences. This trend is driven by calmer markets and new technology and changes how currencies are traded around the world.

Nomura, a top foreign exchange firm company, has seen its client algorithmic trading increased four times since January 2023. Pension funds and asset managers are the major players using these automated strategies.

FX Algos Seeks To Enhance Efficiency And Market Understanding In The FX Sector

Algorithmic trading started in the stock market in the 1970s but only became well-known in foreign exchange (FX) around the mid-2000s. Today, the spot FX market is a complicated system where banks trade in many venues, and each bank usually offers different types of automated strategies.

Antony Foster, Nomura head of G-10 Spot Trading for EMEA in London, stated that the markets have become more fragmented and electronic. Because of this change, clients are now looking for ways to decide and understand their trades instead of just quickly going into the market. He attributed this change to evolving market dynamics.

This increase matches what experts thought would happen. A survey from last year by Coalition Greenwich found that 69% of people expect more use of FX algo trading.

The foreign exchange (FX) market, where over $6 trillion is traded daily, has become more complicated. In today’s spot market, many banks trade the euro-dollar pair across more than 15 places. Each bank usually has different automated trading strategies.

Algorithmic Trading Wants To Analyze Transaction Costs To Optimize Trading Outcomes

Algorithmic trading in foreign exchange (FX) is popular for several reasons. It helps reduce cost, improve risk management, enhance speed and precision, and improve the lasting impact of people working from home during the COVID-19 pandemic.

Ben Robson, who leads e-FX Sales for EMEA at Nomura, stated that algorithmic trading is now viewed as a way to add to the choices for executing trades rather than replacing traders at their desks. He highlighted that ongoing talks are mainly about making decisions based on data and analyzing transaction costs.

As the FX algo trading landscape evolves, more attention is likely to be drawn from regulators. However, insiders in the industry see this as a positive step towards improving the market in the long run.

Foster also stated that the increase in algo trading across FX markets shows a big change in how currency trading happens, and it will become even more advanced in the future.