4 ms·

This article doesn't seem to address the question -- why currency traders, specifically?

gotofritz 11y ago
"Humans are up against formidable opponents across the industry. Take Virtu Financial Inc. Deploying sophisticated technology in the business, the company’s computers can trade more than 11,000 securities and other products on more than 225 trading platforms in 35 countries. Because automation is so deeply ingrained in its business, it had only about 150 employees last year -- generating more than $5 million per worker."
- Sniffnoy 11y ago
  Which does not address the question -- why specifically currency traders rather than other sorts of traders?
rluhar 11y ago
TLDR: FX is getting to where equities and derivative markets have been for a while FX is an OTC market. There are no official "exchanges". Most trading happens either on the interbank markets or via brokers like ICAP, BGC, etc. Over the last few years, the spreads (difference between a buy and sell price) have compressed. FX Clients (i.e. corporations, hedge funds etc.) who would trade directly with their preferred banks; now aggregate feeds from multiple banks and brokers to attempt to get the best possible price. This automation and increase in client sophistication has led directly to tailored market making and sophisticated risk management. The number of players in the FX market has increased as the technology has commoditised. Things like the latency and quality of your market making feed have become differentiators. All of the above has resulted in the market going electronic and a massive reduction in the proportion of trades being quoted and managed by human traders. In most banks, market making is now done by algorithms that aggregate market data and other information from a variety of sources. Traders have either become specialised to niche currencies (Asian, Emerging Markets, etc.) or at dealing with extremely large trades. Their job is now all about determining the type of rate (i.e. which algo) a client should get and how the risk from those trades is managed (aggressively, passively, etc.). I have worked on FX desks (as a developer) for 10+ years. I have seen spot trading desks shrink incredibly, with old school traders being replaced by quants and quant-developers. The algorithmic trading space in FX is not as sophisticated as that in equities of derivatives, but is getting there.
- osullivj 11y ago
  Cash FX (spot, forward, simple swaps, cross rates) is almost totally automated. FX options is less automated. Since FX is less capital intensive than rates or credit, there's still a fair bit of old fashioned trading activity there, even among banks that have withdrawn from other FICC & equity areas like UBS.
  - rluhar 11y ago
    Depends on which bank you are talking about :) You will be surprised at how many places still have spot traders quoting 500K EURUSD rates and assistants running around with pieces of paper..
    - phyalow 11y ago
      500k flow ccy spot via voice? I think you are joking. It's easier for a client and a bank just to trade via an electronic platform. The voice trader would likely direct the client to his on screen rates and he would trade there. I suggest anything under 15mn would be traded via screen.
      - osullivj 11y ago
        Last time I was on an FX trading floor (2010) clients seeking voice quotes for spot would get a sales person who would be using the sales version of the FX single dealer platform. Sales guy would voice quote the electronic rate made by the auto trading system that was shown in the Java SDP GUI on their desktop. For top clients the spread might be tightened slightly, but most would get the vanilla electronic rate. No human trader would be involved, and there would be no manual price discretion at any point.
- Sniffnoy 11y ago
  So it took longer to happen in FX because of the lack of exchanges? Or what?
  - 11y ago
ryporter 11y ago
It's partly because foreign exchange was slower than, say, U.S. equities at becoming automated. If any of the electronic bond-trading platforms every takes off, then that market will see the exact same trend.

"Humans are up against formidable opponents across the industry. Take Virtu Financial Inc. Deploying sophisticated technology in the business, the company’s computers can trade more than 11,000 securities and other products on more than 225 trading platforms in 35 countries. Because automation is so deeply ingrained in its business, it had only about 150 employees last year -- generating more than $5 million per worker."

Sniffnoy 11y ago
Which does not address the question -- why specifically currency traders rather than other sorts of traders?

rluhar 11y ago

TLDR: FX is getting to where equities and derivative markets have been for a while FX is an OTC market. There are no official "exchanges". Most trading happens either on the interbank markets or via brokers like ICAP, BGC, etc. Over the last few years, the spreads (difference between a buy and sell price) have compressed. FX Clients (i.e. corporations, hedge funds etc.) who would trade directly with their preferred banks; now aggregate feeds from multiple banks and brokers to attempt to get the best possible price. This automation and increase in client sophistication has led directly to tailored market making and sophisticated risk management. The number of players in the FX market has increased as the technology has commoditised. Things like the latency and quality of your market making feed have become differentiators. All of the above has resulted in the market going electronic and a massive reduction in the proportion of trades being quoted and managed by human traders. In most banks, market making is now done by algorithms that aggregate market data and other information from a variety of sources. Traders have either become specialised to niche currencies (Asian, Emerging Markets, etc.) or at dealing with extremely large trades. Their job is now all about determining the type of rate (i.e. which algo) a client should get and how the risk from those trades is managed (aggressively, passively, etc.). I have worked on FX desks (as a developer) for 10+ years. I have seen spot trading desks shrink incredibly, with old school traders being replaced by quants and quant-developers. The algorithmic trading space in FX is not as sophisticated as that in equities of derivatives, but is getting there.

osullivj 11y ago
Cash FX (spot, forward, simple swaps, cross rates) is almost totally automated. FX options is less automated. Since FX is less capital intensive than rates or credit, there's still a fair bit of old fashioned trading activity there, even among banks that have withdrawn from other FICC & equity areas like UBS.
- rluhar 11y ago
  Depends on which bank you are talking about :) You will be surprised at how many places still have spot traders quoting 500K EURUSD rates and assistants running around with pieces of paper..
  - phyalow 11y ago
    500k flow ccy spot via voice? I think you are joking. It's easier for a client and a bank just to trade via an electronic platform. The voice trader would likely direct the client to his on screen rates and he would trade there. I suggest anything under 15mn would be traded via screen.
    - osullivj 11y ago
      Last time I was on an FX trading floor (2010) clients seeking voice quotes for spot would get a sales person who would be using the sales version of the FX single dealer platform. Sales guy would voice quote the electronic rate made by the auto trading system that was shown in the Java SDP GUI on their desktop. For top clients the spread might be tightened slightly, but most would get the vanilla electronic rate. No human trader would be involved, and there would be no manual price discretion at any point.
Sniffnoy 11y ago
So it took longer to happen in FX because of the lack of exchanges? Or what?
- 11y ago

ryporter 11y ago

It's partly because foreign exchange was slower than, say, U.S. equities at becoming automated. If any of the electronic bond-trading platforms every takes off, then that market will see the exact same trend.