 
With electronic trading entrenched as an efficient way to buy and sell currencies, platform operators are now building out the suite of products and services that go on either side of the execution.
“Post-trade benchmarking and analytics have been around for a while, and they continue to improve,” said Chris Matsko, head of FX trading services at Portware, a FactSet company. “Pre-trade is the next talking point in the market, and an important focus area for us. We think it is vital for a trader to have tools to capture a large amount of pre-trade data and perform scenario analysis prior to any actual execution.”
Market professionals note that the global foreign exchange market, which trades an estimated $5.3 trillion per day, has a lot of catching up to do with equity markets in terms of ancillary services that are meant to boost efficiency and enable buy-side institutions, hedge funds, and non-financial corporations to improve their FX trading, while fulfilling compliance obligations.
Pre-trade entails leveraging current and historical data to make the best possible decisions regarding strategy, broker, algorithm, and venue. Post-trade covers the required processing of the purchase or sale, including affirmation and allocation, plus a widening array of analytics aimed at deepening understanding of the transaction that just happened.
The state-of-the-art FX trading platform ties together pre-trade, trade, and post-trade Transaction Cost analysis as seamlessly as possible.
“Post-trade TCA reports based on the currency pair being executed, providers in play, execution type (algo, request for quote, etc.), and so on, can then be applied to each trade scenario, and fuel subsequent pre-trade analyses via a sort of virtuous cycle,” Matsko said. “This feedback loop gives the trader more control and insight to what impact his/her trade could have in the market, and the likelihood of getting a good fill rate.”
Chris Matsko, Portware
There are a wide range of participants in the sprawling FX market, all of whom want best execution for their particular trades. But aside from that commonality, pre- and post-trade needs can vary: a hedge fund seeking market-beating returns may need to be equipped to trade as fast as possible, while an investment firm with longer-term hedging needs would be more interested in safety and streamlined operational workflows.
Rick Schonberg, North American head of trading solutions at Currenex, a unit of State Street, likened the dynamic between FX trading platforms and FX market participants to that of automobiles and drivers.
“There isn’t one state of the art, just like there isn’t one car ride that’s right for you,” Schonberg said. “If you’re in London, a small, plug-in electric that fits in tight parking spaces might be perfect for you. In Boston, that isn’t going to work because the battery will die in the cold and snow, and people park differently. You want a car that’s big enough to not get crushed by cars parking in front of and behind it.”
“The hedge-fund manager who’s a former stock trader and needs speed will pick the system with more of a CLOB-like aggregation functionality,” Schonberg said, referring to a central limit order book. “The execution desk at the real-money firm will take the one that is more focused on audit, managing ERISA requirements and has all the other pre and post-trade workflows nicely embedded with safeguards.”
Consolidation of pre-trade systems is a trend on institutional desks. “With some multi-asset execution platforms, buy-side firms can set up a large number of compliance rules at various levels — account level, trade level, user level, and so on,” said Matsko of Portware. “This level of customization for proprietary workflows enables leading-edge EMS users, including e-FX traders, to turn their platforms into order and execution management hybrids.”
“There’s a sweet spot for these sorts of solutions. Buy-sides want rich execution functionality and tightly interwoven compliance capabilities, but may not have the bandwidth or capital to invest in multiple premium, mission-critical platforms,” Matsko continued. “As an alternative, buy-sides can structure a platform like an EMS to deliver checks and validators that bring capabilities beyond execution.”
Ex post facto, “being able to measure the cost of a trade is vital,” Matsko added. “Clients want to benchmark their executions pre- and post-trade to better understand the entire lifecycle of the trade, enabling them to focus on the areas of greatest opportunity for improvement.”
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