Managing forex spreads has been the biggest challenge for buyside traders since the pandemic and ensuing lockdowns, according to a Refinitiv global survey which polled over 1,000 FX trading clients, including 132 traders at fund management houses.
The survey found that 55% of respondents felt spreads was the biggest hurdle while access to liquidity was more of a problem for 13%. Around 15% said they had no issues at all.
Jim Kwiatkowski, global head of transaction sales at Refinitiv, says, “The changes to spreads during this period have been well documented. Spreads widened as volatility increased and providers became concerned about client credit. This was clearly a market-wide impact, but one that was mitigated, at least partially, by the utilisation of trading tools to aggregate available relationship pricing and find that elusive ‘best price’.
He added, “Many clients have taken advantage of auto execution capabilities for smaller orders so that they can focus on their larger, more difficult to execute orders.”
This perhaps explains why the majority or 84% polled pointed to streaming risk transfer as the most reliable execution method while only 10% chose voice risk transfer. “Given spreads, liquidity conditions and volatility, streaming risk transfer has the advantage of leveraging pricing from multiple relationship liquidity providers as well as the certainty of immediate risk transfer,” says. Kwiatkowski,
He notes, “the increased use of send details, which allows trades to be agreed by voice, but then automates the booking through normal straight through processing, suggests that many clients opted for electronic trading tools, even for voice trades, to reduce the risk of booking errors and satisfy compliance concerns.”
In addition, the study found that when it came to transitioning to a working from home environment, over a third said communication with colleagues was the largest obstacle while 27% cited market conditions. Around 15% said they had no issues.
“Difficulties in communicating could be part of the reason why electronic trading was found from the survey to be far more reliable for our participants than ‘voice risk transfer,’ says Kwiatkowski. “It also shows that instead of reverting to old-world methods (voice), the market is now so far down the path of electronification that it pushed even further in this direction as the crisis evolved.”