More than one in three (37%) of the institutional FX traders surveyed by JPMorgan late last year reported that best-execution requirements and precision of execution were the most pressing issues they faced on a day-to-day basis, ahead of liquidity (29%).
These findings are indicative of an FX market that has matured to a point where most customers have access to all the liquidity they need, and historically low levels of volatility have enabled market makers to confidently quote larger sizes at smaller spreads than ever before.
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Neill Penney, |
The next challenge is to develop trading strategies to take full advantage of this liquidity, which involves creating better tools for execution and for measuring execution quality, suggests Neill Penney, co-head of trading at Thomson Reuters.
“A typical best-execution policy will require the company to prioritize between the objectives of timing the market correctly to execute at the best overall rate, minimizing bid-ask spread paid to brokers, minimizing the risk of P&L due to market movement while the order is being executed, and minimizing leakage of trading information into the market,” he says.
