e-Forex-July-23-HighRes-SCREEN

FX Liquidity Management: Addressing the challenges of a seriously complex undertaking
TRADING OPERATIONS
novel offerings on existing platforms.
That makes access to a neutral
third-party technology partner with
the ability to help manage a range
of products and liquidity at scale
in highly volatile FX markets more
important than ever,” says Totten.
At the same time, the role of the FX
liquidity manager has evolved, says
Totten. “It is no longer enough for FX
liquidity managers to simply quote
tight spreads - which is hard enough
anyway in the volatile currency
markets seen since the end of the
zero rates era. Skew sensitivity,
skew leakage and analysis of market
impact are all vital factors to evaluate
for both makers and takers to
achieve the best execution.”
oneZero has developed a range of
tools to measure skew effectiveness
and automatically identify clients
with high market impact to help
liquidity managers allocate their
time and resources to the areas
where they can make the largest
impact, underlining why technology
has become so important to the FX
Liquidity Management process, says
Totten.
“The sheer volume of market data
and the growing number of market
“AI is set to transform a sector that is already benefiting
from sophisticated execution algorithms and increasingly
quantitative analysis for both pre- and post-trade liquidity
management, for example.”
Stephen Totten
participants mean that it is now
impossible to function without
advanced analytics. At oneZero we
are currently seeing 2.5x the data
that we were just 18 months ago,
for example. We regularly handle
over 10 million transactions a day
and averaged more than 9 trillion of
quotes a month last year and data
volumes are set to rise further,” he
says.
“Some market players are struggling
with this, so having a technology
stack that can handle scale is
absolutely crucial. Apart from
regulatory needs that are nonnegotiable,
liquidity managers can
also use new analytical tools to
adjust to market conditions more
quickly, which drives customer
revenues and delivers quantifiable
dollar benefits. Data analytical tools
are already the only way to tackle
most of the key challenges facing FX
liquidity managers. And AI is set to
speed the pace of progress in helping
technology solutions evolve to give
liquidity managers an advantage over
their competitors,” says Totten.
It is also useful for FX trading firms to
try to audit their existing FX Liquidity
Management activities, says Totten.
“Every FX firm needs to audit its
liquidity management outcomes and
plan for improvement. If an ECN or
a bank price maker has a key goal
such as winning a higher wallet
share or reducing market impact,
then that has to be measured, for
example. And if the goal is not met
then the liquidity manager needs to
understand what has happened and
why.”
Technology doesn’t displace relationships in FX Liquidity Management
Despite all the talk of technology,
relationships are vital in FX Liquidity
Management and Totten believes
that the right use of technology
can improve rather than detract
form that relationship. “Technology
doesn’t displace relationships in FX
Liquidity Management, it enhances
their efficiency. Faster transmission
of data, interactive feedback on new
liquidity pools or order types and
greater use of quantitative metrics
all help FX liquidity managers to do
their job better.”
18 JULY 2023 e-FOREX