TraderTools foreign exchange blog

Market Data, TCA and Arrows

By Yaacov Heidingsfeld, CEO
New York,NY August 29 , 2016

In an article published today by Eva Szalay in FX Week (http://bit.ly/2bVi4t3) the suggestion is made that FX trading venues are focusing on market data in order to provide themselves with a competitive edge. I would argue that is an example of the tail wagging the dog.

 

With numerous new offerings from both established players like EBS and Currenex, to new efforts like the Foreign Exchange Central Tape (FXCT), by founder Dmitri Galinov CEO of FastMatch, it seems that some form of data analysis, TCA, or time decay, is the new standard required in order to draw flow.

 

After the spate of scandals in our industry, it is time for the customer find the best online casinos to have the transparency on execution, available in other traded marketplaces. Relationship pricing will not be going away, but the ability for a customer to benchmark their execution against some reference price, is the new standard.

 

Like many new initiatives many are doomed to fail. A good friend of mine taught me “The pioneers get the arrows and the settlers get the land” not sure who said it first but at TraderTools we are going to make our own analysis available to our customers, using best relationship prices, across our entire customer base, and across all currency pairs.

 

Methodology

 

Our reference rates are be the bid/offer for each currency pair on a tic by tic basis.

 

The calculation is a multi-step process.

 

Step one is the selection of Bank and non-Bank market makers in each currency pair, for executable liquidity available in the amount of USD$1 million notional value. There should be no less than 12 market makers in G15 Currency pairs, and no less than 7 in Emerging markets. Selection of these market makers must include factors such as minimal historical execution rates of 95% or better, time zones in which they operate, and a quoting to no less than 20% of all TraderTools customers.

 

Step two is assembling a set of relevant performance statistics for each currency pair, snapshots for each tic of the day, and discarding the extreme outer quotations to maintain data integrity.

 

Step three is using these rates to calculate the actual TCA for any execution on our platform.

 

Throughout each step, the data is validated using standard data validation tools, to provide the most accurate data representation of the market possible.

 

A single FX Time and Sales Tape may emerge in our marketplace. Until then TraderTools customers have the benefit of measuring their executions against over 50 liquidity providers providing transparent relationship pricing across a broad range of customers, whether GUI, API, or HFT’s

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