The LMAX Exchange ‘FX TCA and fair execution white paper is an extensive read, but David Mercer, CEO, breaks the metrics down for you in a new video, highlighting the often unacknowledged execution advantages offered by firm limit order liquidity venues.

David Mercer

Discover how the benefits of firm limit order liquidity and an anonymous, central limit order book (CLOB) hold opportunities for customers used to trading on ‘last look’ venues.

Firm limit order liquidity is the transparent, cost-effective choice, and places the trader in complete control of their execution quality, with no pre-trade information leakage.

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Same ecosystem, same LP. Why do fill rates differ for market vs limit orders?

TCA metric #1

At LMAX Exchange we view rejected orders as an opportunity cost. There’s a real ‘money value’ to a missed order.

Download metric #1 PDF

Price variation. Slippage v price improvement varies by LP. Why?

TCA metric #2

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.

Download metric #2 PDF

Discretionary hold time? Without a 100% fill rate there’s a cost to hold time.

TCA metric #3

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!

Download metric #3 PDF

Market impact. Slow LP response = sharp yield decay per $M traded.

TCA metric #4

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!

Download metric #4 PDF

Bid-offer spread. How do you accurately measure effective spread?

TCA metric #5

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.

Download metric #5 PDF

The latest FX ‘TCA and fair execution’ white paper 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