e-Forex-July-23-HighRes-SCREEN

FX Liquidity Management: Addressing the challenges of a seriously complex undertaking
It is no longer sufficient just to be eyeballing spreads on a GUI or relying on a quarterly market share report
TRADING OPERATIONS
conversations between liquidity takers
and liquidity providers keeps these
relationships fresh, builds this trust
and gives an opportunity to align
concerns.”
Companies also understand the
importance of liquidity management
to optimise their execution quality
and costs, says Durrant. The new
generations of liquidity management
tools bring the data and analysis
that were not readily available to the
masses directly to the end customer.
Aided by the elastic nature of cloud
computing, these platforms are doing
this in the face of increasingly market
fragmentation and a massive growth in
data availability, he says.
“We have already started to see a
number specialist companies offering
liquidity management as a service
which makes accessing liquidity
management insights and information
much easier. These companies have
access to a much broader range of
data so a firm’s performance can be
benchmarked against the market. This
is not without its challenges, however,
and the predominately bilateral nature
of the FX markets make capturing and
sharing of a firm’s bespoke pricing
data an issue,” he says. “Of course, it
is impossible to talk about data and
analytics without mentioning the
potential of AI to supplement and
accelerate the tools of the future.
Given the rapid expansion and
innovation in the AI space this is bound
to play an important role in the next
generation FX Liquidity Management
tools.”
TECHNOLOGY ADVANCEMENTS
According to Guy Hopkins, chief
executive and founder of FairXchange,
liquidity management is becoming
more complex because of ongoing
fragmentation but it is balanced by the
advancements in technology. “There
will always be new platforms, new
liquidity providers and new ways to
execute but that is offset by the advent
of liquidity management software
that enables you to assess all of those
options. We help firms to understand
the impact of changing your liquidity
environment,” he says. “When
you add a new LP there is trading
documentation and credit agreements
to sign, integration work to be done
and APIs to be used, and much more.
It is a complex exercise that takes
time and money and success cannot
always be guaranteed. This should no
longer be the case. It should be much
easier to add and assess new LPs.
This is as important for LPs or venues
selling their services as it is for takers;
both sides need to know whether
a relationship is likely to be worth
consummating”
“One change we have seen in recent
years is the greater number of firms
that have appointed liquidity managers
to take responsibility for the process.
In some firms it is a full-time dedicated
role. Others have liquidity management
departments. But even though it is a
specific role, it can vary depending on
the entity and its trading objectives,”
says Hopkins.
“For example, an ECN will have
a different approach to liquidity
than a macro hedge fund in terms
of centralised dealing desks or
automation. There may even be
different trading entities and styles
within the same organisation.
So liquidity management can be
24 JULY 2023 e-FOREX