As part of its recent push into transaction cost benchmarking, agency brokerage ITG has launched a new index for the FX spot market.
The ITG FX Trading Cost Index application estimates the cost of liquidity for 20 common currency pairs based on notional trade value and the intended time of the order execution.
“There is not publicly available information on cost of execution in the FX market,” said Ian Domowitz, managing director and head of analytic at ITG. “There is just the price of liquidity in the FX market, unless you are a client of a dealing firm, in which case they will provide their idea of what that looks like.’”
ITG draws the market data it uses to construct the index from actionable quotations from 12 FX dealers and five ECNs to support trades as US$100,000 and as much as US$75 million.
The new index is freely available for downloads to mobile devices from ITG’s Web site.
The FX index application has a similar look and feel to the ITG Equity Trading Cost Index, which the brokerage launched in Q1 2014.
“Where the equity index expresses deal sizes as a percentage of average daily volume and breaks equities out by region and sector, the FX index presents deal sizes in dollar terms and replaces regions and sectors with currency pairs,” said Domowitz.
ITG has plans to incorporate data for forwards and non-deliverable forwards by the end of the year along with a separate index for FX volatility and aggregated FX indices, such as the top three currencies, emerging-market currencies and Asia-Pac currencies.
The brokerage also plans to expand its trading-cost index portfolio with a fixed-income offering sometime in Q1 2015. With the fixed-income market’s lower liquidity, developing the corresponding trading-cost index promises to be a heavy lift, said Domowitz. “At least with FX, it trades all the time.”