HFTs Take on the Forex Market

by on April 2, 2014 2:44 pm BST

High frequency traders (HFTs) are under scrutiny that their sophisticated algorithms rig the market by front running orders for a few pennies, a few million times. Now, the HFTs seem to have migrated over to the forex markets.

According to the consultancy company Aite Group LLC, spot currency volume contributed by HFTs has jumped from nine percent in 2008 to 35 percent in 2013. HFTs volume in equities fell to 50 percent in 2012, compared to 66 percent in 2010, said Rosenblatt Securities Inc.

“The use of HFT will make trading and regulation in the FX market more complex, and there would also be some questions over the fairness,” said Anshuman Jaswal, senior analyst at Celent. The “front running” techniques of HFTs are legal, but with manipulation probes around the globe could change that in order to seek “fairness” and more transparency.

Since the probes began, roughly a year ago, the volume in the currency markets have been rather limited, and the moves are been rather hard to track.

Trading has become almost entirely electronic, and nearly 35 percent of all transactions in the forex market are done by a platform owned by ICAP PLC, which is HFT driven, according to the Bank of International Settlements (BIS).

Even though HFTs sound pretty bad, most retail traders will never come in contact with HTFs through their retail brokerages. It is the institutional traders that have trades executed through dark pools and other forms of liquidity.