For institutional asset managers, measuring foreign exchange trading costs has become imperative as the global FX market moves electronic.
The emergence of FX transaction costs analysis (TCA) is directly attributable to the spread of algorithmic trading from equities to other asset classes, with FX being the prime class next in line. However, there are hurdles to overcome in the transition. Unlike equities, FX trading is primarily over-the-counter and doesn’t offer the consolidated pricing or information on transaction sizes available with stocks.
Especially for traditional long-only asset managers, where FX trades are often used to hedge currency risk on equity trades, the need for FX TCA has only recently become apparent.
For such managers, “an FX trade occurs as a result of a global equity trade,” Sachin Barot, vice president of sales at trading systems provider FlexTrade, told Markets Media. “Real money managers are looking for the same transparency as in the equities markets. They need the ability to compare their FX execution price to a benchmark and our TCA product gives them that capability.”