Clients and LPs can equip themselves with an effective way to calculate cost of trading.
The latest FX TCA and fair execution white paper from LMAX Exchange is the product of an impartial analysis of independent Third Party Aggregator data from over 7 million trades (sent to 7 ‘last look’ and firm LPs) during 2016. As a result it proposes a blueprint for FX TCA metrics that will equip customers and liquidity providers alike with an effective calculation of their cost of trading and quality of execution. The 5 FX TCA metrics proposed in the white paper are:
- Fill ratio
- Price variation
- Hold time
- Market impact
- Bid-offer spread
Watch the 5 FX TCA metrics videos
Same ecosystem, same LP. Why do fill rates differ for market vs limit orders?
Price variation. Slippage v price improvement varies by LP. Why?
Price improvement is standard on the LMAX Exchange ‘true market’ CLOB with slippage to improvement roughly 2:1. Price improvement though is virtually non-existent with ‘last look’ LPs, with their slippage ratio sometimes skewed as much as 9:1.
Discretionary hold time? Without a 100% fill rate there’s a cost to hold time.
There is NO hold time at LMAX Exchange – you are matched – or not, instantly. Yet from the TPA data we were able to pinpoint a cost to hold time of $25/M at 100ms with ‘last look’ LPs (unless you get a 100% fill rate). Plus – 60% of that cost also happens in the first 10ms!
Market impact. Slow LP response = sharp yield decay per $M traded.
If an LP is holding your order, which has already been acted on – it is going to cost you money: either through a lower fill rate or greater price slippage!
Bid-offer spread. How do you accurately measure effective spread?
Tight spread good – wide spread bad. If only it was that simple! We found that you must take into account other FX TCA metrics to judge effective spread.
Watch the full FX TCA white paper video ‘walk-through’
At 84 pages, the FX TCA and fair execution white paper is an extensive read. But through the educational video below, David Mercer, LMAX Exchange CEO, breaks it down and walks you through the comparative examples of firm and last look liquidity, highlighting the often unacknowledged execution advantages offered by firm liquidity venues.
Discover how the benefits of firm liquidity deliver complete trading control.
The underlying processes of the LMAX Exchange, anonymous, central limit order book (CLOB) hold opportunities and challenges for customers used to trading on ‘last look’ venues. However the benefits of firm liquidity as the transparent, cost-effective choice that places the trader in complete control of their execution quality, with no pre-trade information leakage is demonstrated clearly.
Cohesive, complete information will forge the path to informed choice for the trader and go a long way to sweeping away the distrust built up over the past few scandal ridden years.
Download a copy of the white paper Cohesive, complete information will forge the path to informed choice for the trader and go a long way to sweeping away the distrust built up over the past few scandal ridden years.