AlgoTrader, a provider of broker-neutral, multi-asset-class algorithmic trading services, has implemented a new function in its SpreadHawk execution management system to help traders hedge currency exposures.
According to AlgoTrader, a spike in cross-border mergers-and-acquisitions (M&A) activity has reignited risk-arbitrage opportunities and means investors need to manage currency risk. Analysts at Deutsche Bank have predicted that M&A deals in Europe are likely to double in 2010. Currency risk is typically managed by manually executing foreign exchange (FX) trades through the day or performing a once-only hedge at the end of the day.
Using the new functionality on the SpreadHawk EMS, traders can manage currency exposure on cross-currency pairs trades automatically and in real time. Automating this process, says AlgoTrader, reduces costs and eliminates time-lags, thereby increasing both the frequency and the profitability of potential risk-arbitrage opportunities.
“It always seemed incredible to us that there’s never been an efficient way for traders to hedge the currency risk of cross-border pairs trades in real-time. So despite presenting some great trading opportunities, the recent upturn in M&A activity has also been causing some big FX problems, especially given recent currency volatility,” said Simon Bell, director of execution services at AlgoTrader, in a statement. “We decided to tackle this issue and, because of the inherent flexibility of our existing SpreadHawk architecture, we were able to develop a robust, fully-integrated system very quickly.”