December 10, 2024 — Investment firms and corporate treasurers participating in the foreign exchange market are actively investing to further automate their trading workflow to improve execution quality and reduce operational risks.

Achieving best execution is a top strategic priority for the buy side. The technologies and tools that help in this quest, including the use of electronic execution venues, transaction cost analysis (TCA) and algorithms are improving and now more commonly used. Looking ahead, nearly half the buy-side firms participating in a recent study from Coalition Greenwich name execution management and analytics as top priorities in technology investment strategies. 

“The overarching goal is to optimize FX trading, and investing in automation and new analytical capabilities is critical to achieving that goal,” says Stephen Bruel, Senior Analyst on the Market Structure & Technology team at Coalition Greenwich and author of FX Trading: Strategic Importance of Electronification and Automation. “Upgrading trading systems such as execution and order management systems, enhancing data acquisition and improving pre-trade analytics all support the broader goal of improving execution quality.”

Automating trade execution is also seen as a key means of reducing risk. However, despite the FX market’s reputation as being one of the world’s most digitized marketplaces, some trades are not conducive to electronic execution. For example, a lack of liquidity and the buy-side’s preference for voice and chat may limit electronic execution when trading certain non-deliverable forwards (NDFs). 

“Not all executions can be automated, so the buy side is also looking for improved tools to optimize their execution when manual intervention is required, still hoping to ensure they are receiving competitive executions,” says Stephen Bruel. 

FX Trading: Strategic Importance of Electronification and Automation traces the evolution of FX market structure and looks at how electronification and developments like the shift to a T+1 settlement cycle are influencing buy-side trading practices and technology development strategies. The report identifies the buy side’s top technology priorities and highlights the biggest areas of opportunity for future automation.