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FX Algos Adoption Up 25% on Back of AI, ML and TCA Usage

After years of watching their equity market peers shift business to algorithmic trades, many FX market participants finally took the leap into the algo pool themselves last year, with adoption increasing by 25% year on year.

Algo adoption rates in FX have remained surprisingly flat over the last five years, even as algorithmic trades proliferated in other markets that have become largely electronic in nature. However, after last year’s spike in usage, about one in five FX market participants are now trading via algorithm—a share that is consistent across the major markets of North America and Europe, and on the rise in Asia.

Satnam Sohal, Principal at Greenwich Associates and co-author of FX Execution: Competing in a World of Algos explains, “As FX market participants adopt sophisticated pre- and post-trade analytics enhanced by artificial intelligence and machine learning, the potential benefits of algo trading are becoming clear, and hedge funds and real money accounts are leading the charge.”

“Technology and regulation are transforming FX trading,” says Frank Feenstra, Managing Director at Greenwich Associates and co-author of the report. “In the new world of best execution, algos offer clients an important tool to source liquidity and minimize costs.”

It is important to note, however, that institutional and corporate FX customers did not shift trading volume away from traditional voice trades to e-trading last year, even with new factors like MiFID II best execution requirements that favor electronic execution. On the contrary, the share of notional FX trading volume executed electronically has hovered around 80% for the past several years.