The use of algorithmic trading in the global foreign exchange (FX) market is on the upswing, according to a new report from Greenwich Associates.
The U.S. research firm reported that, after years of stagnation, the prevalence of algo trading surged 25% over the past year.
Greenwich found that, prior to this recent jump, the use of algorithmic trading in the FX market was essentially unchanged for the past five years.
“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,” the report said.
Now, one in five FX market participants are using algo trading.
Greenwich said this proportion was consistent across North America and Europe, and that it’s on the rise in Asia.
“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,” said Satnam Sohal, principal at the firm.
“Technology and regulation are transforming FX trading,” added Frank Feenstra, managing director at Greenwich Associates. “In the new world of best execution, algos offer clients an important tool to source liquidity and minimize costs.”
Despite the growing use of algorithmic trading, however, Greenwich also reported that institutional and corporate FX customers didn’t shift further away from voice trading and to electronic trading last year.
The report noted that electronic trading continues to account for about 80% of notional FX trading volume, which is the level it has maintained for the past several years.