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FX liquidity is changing, be careful

The timing of foreign exchange trades, their market impact and explicit costs must all be considered by asset managers’ trading teams, as they try to optimise investor returns. While banks are reducing their risk appetite, they are showing clients greater transparency on executable prices on-screen, clearing the risk rather than warehousing it.

In a low volatility market, with tight spreads, this level of efficiency is entirely necessary in order to deliver liquidity at a decent price. Increasingly automation can be brought into the buy-side workflow to optimise its use of this liquidity, says David Scilly, head of fixed income and currency dealing at First State Investments, but traders must be aware of the liquidity they are interacting with, and the post-trade analytics they use to assess execution quality. - 3. Februar 2020