FlexTrade Unveils FX Block Trading
Does Market Impact Matter?
While acknowledging that MilanFX "is sort of the first FX block trading platform," Aite Group's (Boston) Sang Lee adds, "The question is: Will they be successful?" A few of the equities block trading platforms, such as Liquidnet and Pipeline, have been successful by taking advantage of the fact that the average trade size in the market is pretty small, he notes.
But when it comes to the FX market, Lee says, "Things are a bit different." According to Lee, large asset managers can get razor-thin spreads from their banks. With interdealer systems such as EBS and Reuters, the market is pretty deep, especially when looking at the most liquid pairs, such as Euro/USD and JPY/USD, he adds.
"Because there is so much depth there, the emphasis on minimizing market impact is not as significant as we would normally see in the equities market," contends Lee. "I'm not sure of the advantage" of offering a block FX trading system, he says. "The banks are willing to give the buy side tight spreads because they want other business from them. You can't look at [FX trading] as an isolated business."
But FlexTrade's Kedia says the idea for MilanFX was based on the needs of its customers that use the company's platform for algorithmic trading of FX.
And we believe that market impact in the FX market does matter. For example, ECNs have fully displayed order books in which the orders are smaller, he says. "As trades happen, others move their quotes around. That's not impact free - everyone knows what's going on," claims FlexTrade's CEO.
Another competitor, FXall, has a request-for-quote model. If a buy-side firm wants to trade, that leakage of information is showing interest to multiple parties, Kedia contends. He claims, however, that the MilanFX electronic matching system puts the buy and sell sides on equal footing.
Meanwhile, other FX players, such as EBS/Icap and Lava Trading, reportedly have shown interest in the block FX trading space, according to published reports. But Kedia does not seem worried. "The difference is the inroads we've made and the success we've achieved," he says. "It's beyond just lip service." Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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