Algorithmic trading accounts for 20% of forex trades

The algorithmic trading market has mushroomed to around one-fifth of the total volume of foreign exchange trading, according to Icap, the London-based interdealer broker. Latest figures show that application programming interface (API) or 'black box' trading now makes up an average of $30 billion per day, or 20% of total EBS volumes.

This represents a large rise in volumes from almost a standing start a year ago. EBS launched Spot Ai, a platform that allows 24-hour algorithmic trading with the EBS forex markets, last July after a 12-month pilot with banks. Its record day on Spot Ai was $59.3 billion posted on May 24 this year.

Rhomaios Ram, head of global currencies and commodities for Europe at Deutsche Bank in London, said demand for API trading had come predominantly from hedge funds, and that demand would continue to soar. "There's no reason why this rapid increase should not continue. This form of trading enables access to the market that can be relatively risk-free, as it allows funds to trade relatively small amounts very frequently," he said. 

Giles Nelson, director of algorithmic trading at Progress software in London, said it was possible that API trading could double from its current level. He added that the company has seen demand from forex matching that from other asset classes. "We have had as many orders from OTC participants as we have from the equity space over the past year."

Stuart Crooks, head of sales for Europe at algorithmic trading technology vendor Flextrade in London, said: "Mid-tier banks are redefining themselves and looking at packaging white-label offerings with better, quicker ways of trading that algorithms can offer."

Icap pointed to positive trends for forex generally. It said increasing cross-border trade and increasing proprietary risk-taking at banks had driven up volumes. It also pointed to the growth of prime broking and the liberalisation of emerging markets as factors behind the growth in trading.