FactSet’s Christopher Matsko, Head of FX Trading Services, recently spoke with e-Forex about the future of trading solutions for institutional foreign exchange. Below is an excerpt from that interview.
Q: Will FX traders be replaced by robots?
Yes, but not in the “Terminator” (or even termination) sense. Automation and Smart Order Routing are beginning to take a real hold in the foreign exchange (FX) market and having the tools necessary to stay ahead of the trading curve will be essential to boosting any trader’s longevity on the desk. As trading desks evolve to handle workflows across multiple asset classes, the ability for a single platform to navigate them seamlessly, and to do so in a way that enables traders to spend their time on higher-value tasks, has never been in greater demand.
Having the tools necessary to stay ahead of the trading curve will be essential to boosting any trader’s longevity on the desk.
It’s been long discussed and highlighted that the recent trend in global multi-asset class trading is to spread the traders thin by giving them more responsibility across multiple asset classes. Whether that means FX and fixed income, equities and FX, or even all the above, most desks are being forced to do more with the same or fewer bodies on the desk. This is where robots naturally come into play. A proper automation tool kit in this context relieves a trader from having to make unnecessary button clicks for routine order routing or execution; these tasks can be handled readily by the machine that is trained via the inputs provided by the expertise of the human trader. We are seeing this play out all over the world in various degrees of implementation, from simple auto-routing of WMR [WM/Reuters benchmark rates] trades to automated competitive RFQ [Request for Quote] trades, and as advanced as automated slicing of orders and executions within curated streaming liquidity pools. It’s all there for the buy-side to utilize—they just need to come to terms with their level of comfort at having executions happen away from their hands.
Q: What do you think the trading room of the future will look like?
Many of us in the technology solutions business have a good view of what the trading floor of the future looks like, it’s just a matter of who can put all the relevant pieces together first; that’s who will likely win the technology race. In a big way, the future is data, metadata in fact. Enabling and empowering clients with near real-time access to historical and inflight metadata will be a massively important ingredient to how trading decisions are made in the future. This is what FactSet refers to as the “enlightened workflow.”
Near real-time access to historical and inflight metadata will be a massively important ingredient to how trading decisions are made in the future.
FX transaction cost analysis (TCA) is now more important than it’s ever been, and although post-trade TCA is well over a decade mature in the FX industry, it’s the automated application back to the front of the trade life cycle that is becoming the new hot topic. It’s no longer the use of these cost measurements to validate previous trading decisions that are capturing desks’ attention (although that is still extremely important), it’s now about turning this data into actionable decision points for the next trade execution.
New products and their liquidity, along with increased regulation and further adoption of automated trading, are likely to be the main drivers of change and possible disruption in the institutional FX trading space in the near-to-medium term. Having the right toolset to take advantage of unforeseen market disruptions will be crucial to the success of any desk.