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July 1, 2019

FX Options – e-Trading Exotics Will Drive Market Growth

Advances in technology and increased automation have been central to the evolution of capital markets since the turn of the century (or arguably earlier), especially among participants who rely on speed, accuracy and efficiency to deliver profitability. As financial technology has become more advanced, the processes that firms seek to automate have become increasingly sophisticated. FX Options are an obvious target for technological innovation, as this is a global market with high levels of complexity, particularly when trading Exotics.

Exotic FX Options are an area that has yet to be automated because of the sheer difficulty in writing code that can manage the task. Exotic FX Options make up only a small percentage of the FX Options market, probably due to them being significantly more complicated than Vanillas, with multiple different variables, such as moving expiry dates and complicated order requirements.

However, there is a growing demand in the market for Exotics to be automated. Increased efficiency and cost savings are two key drivers, as the potential savings on staff costs alone are significant. In general, staff who specialise in FX Options are considered expensive and human error, such as keying error, in such technical processes is all too common. There are also the major benefits of better and faster data capture and analysis, further improving risk management and monitoring.

Regulation is another driver of trading automation, as financial firms capture and process huge amounts of trade and reconciliation data. That data is especially cumbersome in Exotic Options due to their complicated nature, and in today’s world of reporting obligations, it is largely recognised that Exotic FX Options can only be reported to the satisfaction of regulators through an automated process.

We spoke with Digital Vega, the provider of FX Options trading solutions, which is in the process of adding Exotics to its trading platform, Medusa. Medusa offers access to multiple liquidity providers, supported by aggregation, best execution, and workflow management tools. This is new to the market and is already generating significant interest. In addition, Digital Vega plans to release a mobile interface for Exotics trading.

Mark Suter, Co-Founder of Digital Vega commented, “Exotics are a relatively small part of the market, so the main technology focus has always been on Vanillas. Recently, clients have asked for us to add Exotics to our platform, so that they can automate all of their FX Options. Our new service will automate the whole process for Vanillas and Exotics, which increases efficiency throughout the front, middle and back office. Significantly, by improving access to trade Exotics it provides a stimulus for growth.”


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