FX Trading is Primed for More Automation

At a Glance

  • Regulation for uncleared margin could help steer the FX market to adopt new technologies
  • Automated processes will help lower operational costs for intermediaries and execution providers

Inefficiency is an ever-present risk in foreign exchange trading and post-trade processing.

Within the FX world there exists a matrix of procedures that handles, bluntly, anything that the FX market can throw at it. For example, some market participants still book trades manually, and resort to fax and/or email confirmation.

There is widespread automation in FX, but it falls far short of being universal.

Investing in Automation

Historically, investment in FX trading technology has been focused on front-office activities. Since the financial crisis, regulatory conformity has taken a huge slice of IT budgets. Back-office and supporting post-trade services have only received a small percentage of the IT spend. But the benefits of automation are increasingly being acknowledged. Those include lower operational risks and avoidance of settlement failures along with lower support and operational costs.

Automated matching, confirmation and affirmation processes with a greater number of counterparties will also lower costs for intermediaries and execution providers, and will provide a more streamlined flow of trades into settlement and clearing services.

How, then, does the FX market move forward? There are four main areas to consider.


There is an indirect impact of regulation whereby the costs associated with maintaining bilateral agreements with counterparties – and having to post variation margin for some FX instruments under new uncleared margin rules – are pushing more firms towards clearing, which will force standardized processes to emerge.

We’re seeing an expansion of the number of FX instruments supported by central counterparties as well as the introduction of listed FX instruments, which some are using as alternatives to pure OTC FX trading.


Messaging standards that have been adopted in other asset classes are now gaining traction in FX. This will benefit firms that have systems to support these standards.

The increased adoption of messaging standards like FIX and the implementation of FX affirmation and allocation workflows between suitably equipped market participants has created conformity for some scenarios in the FX markets that we have seen in equity markets.

Single Connection Service

There are signs that demand for universal automation in the FX market is being met. One of the main criticisms of existing post-trade processes is the need for multiple connections with multiple vendors and multiple vendor processes.

Accessing multiple trade lifecycle management services through one connection is advantageous, as long as the vendor providing the solution has an established network of market participants. An open platform capable of supporting industry standard messaging protocols, third-party vendors and industry utilities such as clearinghouses and trade depositories is also important

Single-connection services are now available, and as this suggests, vendors have a significant role to play in driving automation. This goes far beyond providing simple connectivity.

Business Intelligence

Vendors play an important role in their interaction with regulators and industry bodies, most importantly with respect to longer-term structural changes.

Historically, little attention has been paid to post-trade platforms across the FX marketplace, but today, vendors and their clients are closely focused on making processes more useful and efficient through the application of business intelligence.

We’re now in a position where we can centralize a lot of the decision-making that has previously been managed independently by each market participant and realize intelligent post-trade processing.

Trades can be automatically routed only to those services required to conclude each given post-trade process and the cobweb of “if-then-else”-style decision-making logic can be replaced.

Firms with the most efficient pre- and post-trade processes are likely to appear more attractive to market participants who are themselves increasing automation within their own systems. Vendors must have a track record of delivering solutions that work and that solve real world problems as opposed to simply presenting concepts that don’t benefit a firm and that have not actually been delivered.

Steve French is the Head of Product for Traiana.

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