Giles Coghlan LLB, Lth, MA
Financial Source
A different topic for us to look at today as we await the outcome of the US elections. Around 15% of daily spot FX trading is executed by algorithms. So, what is an algorithm? It is an automated trading program that places a trade according to a pre-defined set of instructions. These algorithms have developed from very simple rule based mechanisms to more advanced strategies that respond to different market conditions.
So, which are the main currencies are using EA’s?
In a Markets Committee survey where algorithm providers where asked which currencies EA’s were used with and what the size of the ticket was the following answered were given. Look at the results of the survey below. It is no surprise that around 94% of G7 currencies have clients using EA’s. This is for the major currencies like the USD, the EUR and the GBP etc. The average ticket size is around 31 million for this G7 block.
So, what are the consequences of using algorithms?
One hidden impact of their use has been a move towards market makers, often the bank, trying to match orders internally without passing them on to external venues. This trend has now raised some concerns with the Bank of International Settlements as if too much internal order sorting takes place then the quality of prices reported may be undermined. You could envisage a situation where the reported prices is not reflecting the true price. This could also cause the trading volumes on primary venues to drop. This matters because prices from primary trading venues such as Refinitiv and EBS are used as reference prices for other currency trading platforms and for bilateral trading.
Another impact to be aware of is the rise of ‘flash crashes’. These are sudden violent moves in markets and they appear to be accented by algorithmic trading. The most likely time for a flash crash is after the close of the US session and before the open of the Asian session, so this is something to be aware of if you are holding trades over that time.
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Editors’ Picks
EUR/USD retreats towards 1.1300 as Wall Street shrugs off trade war headlines
The EUR/USD pair retreated further from its recent multi-month peak at 1.1473 and trades around the 1.1300 mark. Wall Street manages to advance ahead of the weekly close, despite escalating tensions between Washington and Beijing and mounting fears of a US recession. Profit-taking ahead of the close also weighs on the pair.
GBP/USD trims gains, recedes to the 1.3050 zone
GBP/USD now gives away part of the earlier advance to fresh highs near 1.3150. Meanwhile, the US Dollar remains offered amid escalating China-US trade tensions, recession fears in the US, and softer-than-expected US Producer Price data.
USD/JPY hits seven-month lows near 142.00 as the sell-off extends
USD/JPY extends its losing momentum into the fourth consecutive day in European trading on Friday, having recorded its lowest level in seven months just above 142.00.
Editors’ Picks
Gold hovers around all-time highs near $3,250
Gold is holding steady near the $3,250 mark, fuelled by robust safe-haven demand, trade war concerns, and a softer-than-expected US inflation gauge. The US Dollar keeps trading with heavy losses around three-year lows.
EUR/USD retreats towards 1.1300 as Wall Street shrugs off trade war headlines
The EUR/USD pair retreated further from its recent multi-month peak at 1.1473 and trades around the 1.1300 mark. Wall Street manages to advance ahead of the weekly close, despite escalating tensions between Washington and Beijing and mounting fears of a US recession. Profit-taking ahead of the close also weighs on the pair.
GBP/USD trims gains, recedes to the 1.3050 zone
GBP/USD now gives away part of the earlier advance to fresh highs near 1.3150. Meanwhile, the US Dollar remains offered amid escalating China-US trade tensions, recession fears in the US, and softer-than-expected US Producer Price data.
Bitcoin, Ethereum, Dogecoin and Cardano stabilze – Why crypto is in limbo
Bitcoin, Ethereum, Dogecoin and Cardano stabilize on Friday as crypto market capitalization steadies around $2.69 trillion. Crypto traders are recovering from the swing in token prices and the Monday bloodbath.
Is a recession looming?
Wall Street skyrockets after Trump announces tariff delay. But gains remain limited as Trade War with China continues. Recession odds have eased, but investors remain fearful. The worst may not be over, deeper market wounds still possible.
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