Traders at banks are being outpaced by high speed computer algorithms operating on foreign exchange dealing platforms, leading to a fall in spot volumes on the market’s two biggest trading venues and prompting some traders to look elsewhere.
The two primary interbank platform dealing providers – Thompson Reuters and EBS – both reported declines on spot trading volumes in June.
Traders attribute the decline to a number of factors, but many say that the perceived advantage that automated algorithms, also known as high frequency traders (“HFT”), enjoy is the main driving force pushing traders away. Because of faster connections and superior technology, HFTs can hit quoted prices before manual traders, even if the manual order is put in first.
According to the global head of spot trading at a European bank, “Thompson Reuters and EBS were basically building their business with HFTs and HFTs were modeling voice traders’ behavior and front-running all the big orders.”
“It was creating a business but making it more difficult and expensive for manual traders.”
The banks, in response, have pushed back by creating their own platform.
Interdealer broker Tradition Ltd is launching new platform traFXpure in co-operation with banks including Barclays and Deutsche Bank. “The majority of participants are happy to compete in the FX market but they are not happy to compete in a technological arms race,” said Campbell Adams, managing director of traFXpure.
Although HFTs can participate on traFXpure, their higher speed will not gain them an advantage over manual traders, according to Tradition.
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