Friday, July 22, 2011

FX eCommerce - Single Dealer Platforms

http://www.finextra.com/community/fullblog.aspx?blogid=5213
FX eCommerce - Single Dealer Platforms

14 Apr, 2011 18:57 I recently completed some research on single dealer platforms or FX eCommerce systems, which are designed for market makers and dealers in foreign currency trading. My research covered FX aggregation, pricing, auto-hedging, position-keeping, smart order routing and internalization.

Here are a few tidbits from the research:

FX single dealer platforms aggregate liquidity from dozens of sources, identify base pricing, determine and publish pricing to clients, manage positions, handle order flow, automatically hedge positions, route orders to counterparties, and internalize client orders.

The FX market is highly fragmented, with hundreds of dealing banks, ECNs, and interdealer brokers all publishing prices and competing for order flow. Pricing approaches are not standardized. Liquidity may be reflected as streaming quotes, live resting orders, indicative prices, request for quotes, or request for streams.

Every FX deal involves two currencies – one being bought and the other being sold. This means that the dealer takes a position with every execution of a customer order, and those positions have to be hedged promptly to reduce risk. However, prices offered by other banks can shift rapidly, and quotes are not always firm, which makes routing orders and ensuring execution more complicated. The life span and nature of each price varies by venue and sometimes by message. Some venues want a “last look” option allowing them to take a look at the markets before they automatically execute an order. This might result in them rejecting an order at a quoted price even if the price was valid when the order was sent.

Most FX market data is delivered in pulse intervals instead of continuously, and substantial activity can occur outside of regular data distribution intervals, which also affects the validity of prices, especially in a high frequency trading environment.

Geography also plays a role. Since the dealing banks are geographically distributed around the globe, prices have a varying amount of latency when they first arrive, adding more complexity that has to be considered by the pricing engine, smart order router, auto-hedging and risk management.

This is a fascinating market with a lot of complexity that makes it very interesting. It is clear that an event-driven architecture is absolutely critical for creating an FX eCommerce system.

6 comments:

Anonymous said...

Thanks for the post, This was exactly what I needed to see.Good list, keep up the good work.
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Charlie Chung said...

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Blogger said...

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zoha khan said...

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PREPARE FOR THE WORST...

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SECOND PROBLEM: TREND RELIABILITY

Most systems use various indicators to determine the trend. Actually, there is nothing bad about using indicators. One Simply Moving Average can do the job. The problem comes with the question: "Is the market trending NOW?" Whether the market is trending or not trending is not like black and white. The correct question is: "How well the market is trending?"

And here we have something called TREND RELIABILITY.

Trends exist and they can be traded up and down for a profit. You have to focus only on the most reliable market trends. "Forex Trendy" is a software solution to find the BEST trending currency pairs, time frames and compute the trend reliability for each Forex chart:

==> http://www.forextrendy.com?vgcvasdiugf9g87346

dimple wisdom said...

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chaitra wisdom said...

Let me explain the basic principle how most Forex systems work. They are tuned up to work in a specific market condition. They often make money in a trending market, but loose money in a choppy market. It is not a problem as long as the market is trending and the system is making more money than it loses. Such a system can be profitable for several months and you would be happy with it. BUT...

PREPARE FOR THE WORST...

Market change over time. A well designed system starts with trend analysis to stay away from potentially losing trades. There are two problems of how a Forex system recognizes the trend.

PROBLEM: FALSE "STRONG TREND" INDICATION.

The system responds only to immediate price action. An explosive price movement that is usually the result of news release is tempting people to jump in and make a profit. It looks like a "strong trend", but what usually happens next is a hard fall.

To avoid falling into this trap, check for the SOLUTION to find a REAL trend:

==> http://www.forextrendy.com?nsjjd92834

SECOND PROBLEM: TREND RELIABILITY

Most systems use various indicators to determine the trend. Actually, there is nothing bad about using indicators. One Simply Moving Average can do the job. The problem comes with the question: "Is the market trending NOW?" Whether the market is trending or not trending is not like black and white. The correct question is: "How well the market is trending?"

And here we have something called TREND RELIABILITY.

Trends exist and they can be traded up and down for a profit. You have to focus only on the most reliable market trends. "Forex Trendy" is a software solution to find the BEST trending currency pairs, time frames and compute the trend reliability for each Forex chart:

==> http://www.forextrendy.com?nsjjd92834