A Liquidity Aggregator acts as a centralized trading portal by accepting and normalizing several data feeds, feeding that data into algorithmic engines and receiving orders and routing them into the market. By presenting available liquidity in a single and consolidated order book, Aggregator act as a ‘Virtual Forex Exchange’ for buy-side traders. Traders can get a complete picture of available liquidity in a single trading environment, which enables them to have maximum control over their order flow by easily sorting, analyzing and making profitable decisions. Aggregation solutions are developed using Complex Event Processing technology, which are real-time in nature. Leading banks have now recognized opportunities in providing market aggregation services to their customers, creating sophisticated order types and implementing smart-order routing technology.
Trading institutions and market making banks can build their own trading platform that provides an aggregated view of the market. On voip gateway getting an aggregated view of the market, algorithms can be created to apply orders based on their trading strategies. Trading firms can also purchase a third party aggregating and trading platform with prebuilt screens, algorithms and connectivity (referred to as ‘Black-box solutions’). Alternatively, they can also apply systems which also come with pre-built features but can be configured to meet the trading firm’s specific trading needs, commonly known as ‘White-box solutions’. White box solutions are particularly applied by top-tier hedge funds and large dealers.
The biggest challenge faced by all market participants (including sell-side and buy-side traders and market makers) in Forex market place today is managing complexity driven by drastically growing trading volumes and growing dispersion in liquidity sources. Significant investment is essential for updating old technologies or risk losing money on trades. A well developed and maintained liquidity discovery and aggregation solution can provide a trading firm competitive advantage, especially for market making banks which have traditionally relied on EBS and Reuters for accessing liquidity. Banks are increasingly using aggregation tools not only to track the available liquidity in the market but also in their own orders books. For example, HSBC has internally built its own liquidity discovery solution by applying aggregation and algorithms. Large hedge funds and banks view algorithms as a competitive advantage and do not rely on third-party vendors for algorithm development.
Costly and Time-Consuming
According to TABB Group, by the end of this year, 68% of all forex trades will be executed online. Historically, only the largest corporate customers dealt electronically, however infrequently trading customers are also looking for trading electronically with their banks. To satisfy this growing clientele, banks are therefore focusing on building robust and scalable trading platform. They use Complex event processing technology to build a series of rules that enable them to locate the best available price. They can also build algorithms to reflect their trading habits and preferences instead of applying a standardized third party trading platform. However, developing such a platform in-house is costly and time-consuming which can be afforded by only a handful of tier one banks that have enough resources. By outsourcing technology to best suppliers, banks can reduce their time to market and IT costs.
Current market conditions have further aggravated the problem of lack of resources. Both tier 2 and tier 1 banks are therefore entering into partnerships with vendors and other banks for developing white-labeled solutions to capture forex business. Some banks prefer third party providers which provide the same tools but without the burden of in-house development cost and cost of maintaining and updating algorithms. Ready to use aggregated platforms act as a telecom grid wherein market participants can easily dial anyone and engage in a conversation without investing in infrastructure. Moreover, vendors are increasingly adopting FIX standards for trading and FIX FAST for providing market data, thus improving connectivity to execution venues and overall performance.