Trading firms seek ‘in-flight’ TCA to flag potentially bad FX trades

Speakers at TradeTech FX USA told delegates that traders would be empowered if ‘in-flight’ TCA could flag when trades aren’t going as planned.

Foreign exchange market participants are seeking efficient methods of alerting traders if an ongoing transaction isn’t going as planned using real-time, or ‘in-flight’, transaction cost analysis (TCA).

Buy- and sell-side panelists at the TradeTech FX USA conference in Miami dissected the use cases of TCA data, with pre-trade analytics allowing firms to work out expected costs of a trade, and post-trade analytics showing the realised costs. The panel agreed that in-flight data could prove extremely useful in terms of flagging issues with ongoing trades.

“The in-flight data is where it gets interesting, because what if costs are way worse that you expected? It would be far more interesting to monitor in-flight data so that you could potentially flag when the costs of a trade is deviating significantly from what you expected,” said John Radle, head of trading at quantitative investment firm Campbell & Co. “It’s hard to monitor every single order so it’d be great to be able to flag the trade and say let’s get some eyes on this.”

Michael Babic, Americas head of FX eCommerce sales at Goldman Sachs, agreed with Radle, adding that this is an area of focus for Goldman Sachs due to engagement from clients on the development, and the clear benefits such analytics could provide for FX traders.

“We focus a lot of time on the in-flight TCA where traders can be empowered with being able to look at how they are addressing problems in terms of what is happening, versus your expectations before you started the trade,” Babic told delegates. “That’s where our clients really want to engage, so that they can be alerted if a trade isn’t going as planned, and then they can do something about it.”

Panellists also agreed that buy- and sell-side firms simply don’t have the bandwidth to monitor every single trade in real-time, so the need to be alerted if a trade isn’t going as planned has become more crucial.

“I would agree the more we can move towards closing that loop from the post-trade to intra-trade environment, the better it will be for everyone,” Holden Sibley, head of Americas eFX distribution at Barclays, added. “To get there will involve the close dialogue that Michael and John are talking about, alongside an increasingly trigger and alert-based mechanism.”