FXSpotStream Live with Algos and Allocations

FXSpotStream is adding an important element to its service with the much-anticipated launched of algos and allocations. The launch will be backed by 14 of the 15 banks (one does not support algos at this time) on the service, and FXSpotStream says it has multiple clients ready to go live in the first weeks.

The launch breaks new ground in the FX market as a multi-dealer platform delivers algos via an API, and Alan Schwarz, CEO of FXSpotStream, notes it is a natural development given the service’s API roots. He acknowledges that some believe the launch is ahead of its time, but points out, “The same things were said about our original service 10 years ago, there was scepticism over the model, but they were clearly proved wrong and I think it will be the same now.”

His confidence is bolstered from the experience of the past 18 months, especially as the pandemic first took hold, when businesses found they needed more automation in their processes. “We heard more and more from clients as last year progressed, that problems were surfacing and they needed to automate more of their processes, controls and reporting functions,” he says. “Automation brings resilience, this is especially the case with a dispersed workforce, and that just screams ‘API’ which is our strong suit.”

Although the timing of the pandemic has focused minds on greater automation, the fact is the subject was high up firms’ agendas before then – this is a trend that is likely to not only be sustained, but also accelerate. Throw in resource constraints as firms scramble to catch up with work plans on hold for six months or more, and the FXSpotStream proposition offers a compelling solution. As Schwarz observes, “One API offering access to 14 banks’ algo strategies, with allocations off the back of them? That’s an efficient use of resources to access a critical process.”

It is not just 14 algos of course and here FXSpotStream has faced an interesting choice. Does it go the route of offering just a few basic strategies or open the doors to everything on offer from the 14 banks? The answer has been the latter. “Some banks offer dozens of algos of different flavours, while others prefer a more straightforward approach like a TWAP, VWAP and a couple of other variations.” Schwarz explains.

“We are going to offer all strategies to our clients,” he continues. “This means there will be 70-plus algos on the service across the banks with over 200 configurable parameters, but we feel it is better to offer the clients everything so they have options. Client demands often contain surprises and if you don’t have what they want, they’re going to look elsewhere.”

The process will be familiar to many users of algos, a client will select the bank and algo strategy desired, add parameters they wish to engage, and send the order off for execution. A notification service is already available on FXSpotStream for affirmations and trade details, this will be used for the algo service.

Although take up of the allocation service is expected to have a longer-term horizon – there are incumbents in this field – Schwarz stresses how this launch is just the start. “We will be offering pre- and post-trade allocations,” he explains. “We know this is a mature market with established players, but we will continue to build out this product because there is an absolute need and opportunity there. Clients are unhappy with the currently available solutions and that is our opportunity.”

Breaking New Ground

With the algos and allocations launched, FXSpotStream is also planning to break new ground later this year – as part of a broad book of work, it will be launching a GUI to support the algo business. “We recognise that there is a fair amount of algo business done via a GUI,” Schwarz acknowledges. “Our plan is to start with our strength – the API – and then look to a different channel in the GUI.”

The GUI will offer everything that is available via the API and Schwarz expects that once some clients become comfortable with the service, they will migrate to the API. “We definitely see the GUI as a means of clients kicking on to the API,” he says. “The benefits of automation are pretty compelling, but for many clients you need to build a level of comfort with how things work on your service.”

As hinted at there, FXSpotStream sees the launch of algos and allocations as something more than an additional service for existing clients. “This is a client segment play as much as it is a functionality play,” Schwarz confirms. “We have real money and hedge fund accounts on the service, but they are not the largest of our client bases – they do, however, use algos and allocations a lot.

“I think algos can go the same way as our NDF service did in the years since we launched in 2018 – clients come to use algos, see we do other things as well, try us out and like it, and increase their use of FXSpotStream,” he adds.

The launch of a GUI does raise the question, ‘will FXSpotStream be adding pre-trade analytics to its service?’ Schwarz says advanced analytics are planned in addition to what is currently more of a record keeping tool, noting, “The analytics space is really interesting and we can leverage the fact that we have everything in one place, via one connection. We are keen to roll out anything that helps our banks and clients have good conversations, and analytics around the algos is one area we expect to develop.”

While analytics will come down the road, the addition of algos and allocations fills an important gap for FXSpotStream as it seeks to build the business further, having recently surpassed $50 trillion volume since launch. Schwarz says the service has a “long list of enhancements” planned for the coming year, which suggests it will not be letting up the pace any time soon.

For now, though, the growing number of clients interested in engaging with an algo in FX markets, have another channel over which they can do so.