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Tough Questions for FX Investors: How Should You Execute That Trade?

Traders Magazine Online News, October 18, 2018

John D'Antona Jr.

So, how do you execute multiple forex trades? What are the options?

According to market consultancy Greenwich Associates, the forex market is not only the world’s largest, longest-running and most international market but it also offers investors perhaps the biggest range of options for executing trades.

Really? Yes, really.

Within the FX market structure, customers can choose among a plethora of counterparties and trading protocols. Many of these options exist in other markets, but few markets have them all. A new report from Greenwich Associates analyzes the options available and how investors choose from the list of execution alternatives.

Investors’ first decision is whether to trade electronically or via voice or IM. If investors choose voice, they can trade directly with dealers or work their orders through brokers. If they choose to trade electronically, they can choose between single dealer and multi-dealer platforms.

Even within the platforms, there are multiple choices for protocols: RFQ markets, CLOBs, direct streams, and clustered streams with special rules preventing sweeping to encourage the liquidity providers to quote in larger size. In addition, there are choices among pre- and post-trade support options and algo suites accessible both on multi- or single-dealer platforms.

The Greenwich Report, All Against All or Winner Takes All: How Investors Shape FX Platform Markets, highlights several important findings including the premium FX investors place on access to disclosed dealer liquidity, which is valued more highly than CLOB or non-bank liquidity combined and that firms see post-trade workflow as twice as important as pre-trade analytics.

“This is surprising because so much attention is paid to pre-trade workflow and transparency, but the thing that moves the needle for firms is getting the plumbing right, the unglamorous clearing and settlement processes,” said Ken Monahan, Senior Analyst for Greenwich Associates Market Structure and Technology and author of the new report.

In addition, the report found that investors that use multi-dealer platforms consistently use a single platform, often with another option available as a back-up.  “The multi-dealer platform world is truly a winner take all business,” Monahan added. “The number one multi-dealer platform has almost as many users in our study as the next two platforms combined.”

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