fx aggregator

FX Market microstructure

In order to understand FX aggregators, we need to understand how the forex market is structured.

Unlike in markets like equities or futures, there is no centralized exchange, hence there are no “unique” prices for the same asset. In fact, there is no single price that for a given currency at any time, which means quotes from different currency dealers vary.

This could be confusing at first, but after some thoughts, it becomes very easy to understand.

In the forex market, we have different participants: Banks, ECNs, Liquidity providers (LPs) and traders.

Being this an OTC market (Over The Counter), means that there will be many different providers for the same pair, hence, different prices. So, depending on which provider you are looking at, you will see a different price.

FX Aggregator

Having this situation, traders need to have the necessary tools to have a better outlook on the fx market.

Here is when FX Aggregator comes to play. It reads currency prices from all sources on all the different tiers, building an internal and centralized limit order book. This way, traders can satisfy the needs for fast execution and effective order routing as per specific rules.

Why do I need an FX aggregator:

·        Minimize market impact when trading big sizes.

·        Minimizing slippages.

·        Being able to execute through smart order routers with a better price discovering.

·        Lowering trading cost, having access to the best spreads at any specific moment.

·        Risk diversification with different sources

Performance

Collect prices on many tiers from different sources it is challenging but is not rocket science.

But it could be if you have to do all that, plus analyze it and send back orders, all within microseconds, and still being on time.

That changes everything. You will need to pay special attention to how you design your aggregator and how you architect it.

I wrote about architecting low latency systems for trading here: http://www.sissoftwarefactory.com/blog/how-do-i-design-high-frequency-trading-systems-and-its-architecture-part-i/

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Ariel Silahian

www.linkedIn.com/in/silahian

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Keywords: #hft #quants #forex #fx #risk $EURUSD $EURGBP $EURJPY #fintech

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