TraderTools foreign exchange blog

HFTs, EBS and Market Trends

By Ian Tick, Director of Marketing, TraderTools
May 9 , 2013

Based on the Forex Magnates post of May 2, 2013, “The Evolving Future of FX High Frequency Trading & EBS”, writer Ron Finberg quoted Yaacov Heidingsfeld, CEO of TraderTools, as saying, “The FX market is not homogeneous. Different market participants trade with different motivations. EBS’s traditional customers were not speed-driven, but position-driven. In batching and randomizing orders on the EBS platform, EBS is essentially levelling the playing field to enable it to re-attract its native customer base.”

 

Heidingsfeld continued, “What I see happening in the market, is that different trading venues will be servicing different types of flow.” In addition to the creation of multi-room ECNs, technology providers are also responding by launching customized products for the FX industrys diverse set of trader. Regarding his own firm, which provides liquidity aggregation solutions for traders to create their own multi-dealer platform, Heidingsfeld added, “At TraderTools, we believe that there is no single market solution for all participants.”

Another direction that we could see take place is the migration of HFT spot traders to exchange-traded futures venues. Unlike spot FX, HFT is more prevalent in exchanges. Heidingsfeld stated that recent estimates show that between 25-30% of FX trading is HFT. This contrasts with US FX futures exchanges where according to the Tabb Group, as mentioned in the WSJs article, HFT accounts for 61% of volumes. As such, with the order flow much more common in futures, disgruntled spot traders may just adapt their strategies for futures.

Taking it further, Heidingsfeld also pointed out structural problems that an HFT driven ECN would experience. “HFT market makers have limited credit and, therefore, are limited in the quantity of liquidity they can offer,” he explained. “While banks are committed to making prices for their customers 24/5 (local time), HFTs are not and have shown that there are times when, for whatever reason, their algo model stops making prices, either in (a) particular pair(s) or over a period of time. There simply wouldnt be sufficient flow to generate critical mass.”

Read the full post here.

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