# how do you evaluate an FX market EMS?

My firm is investigating FX EMS systems to see if we can reduce execution costs for our trading strategies that involve FX (not low latency).

The liquidity providers are a few major banks. We're interested in the potential to include more banks and ECNs if we find there are advantages to this through being able to aggregate many venues efficiently.

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Any features in particular you need? Venues? Language bindings? – chrisaycock Apr 17 '13 at 17:45
I would first consider trading through an ECN before potentially shelling out tens of thousands of dollars for an in-house aggregation solution. FXALL, for example, has deep liquidity and shows very good pricing. Before long I would expect a lot of consolidation in the fx aggregation market, so players such as FXALL will only get bigger nor smaller. You will hardly see better prices at current than what you see at FxAll. I am not affiliated with them but find what they offer very convincing. – Matt Wolf Apr 18 '13 at 2:17
Don't these have typically higher spreads than going via banks with whom you have relationships? Banks providing liquidity to anonymous ECNs will quote wider spreads there than to their own clients (once they are comfortable with how their clients trade against them) – pedro Apr 18 '13 at 10:14
@Freddy You will (almost) always see better prices if you trade directly with the counterparty, not least because the counterparty pays a fee to FXAll. The impact on spreads can be as high as 2/4 pips on major pairs such as EUR.USD (it can be less). Probably negotiable though. – assylias Apr 18 '13 at 18:58
That is something I can for sure confirm to be incorrect. Almost always does one get much better liquidity at better prices from ECNs such as Ebs or FxAll or reuters than from an individual bank. I can give you 5 or more reasons why that is the case but I do not see a single reason in support for your case. No single bank will be able to offer 100mil upwards at as competitive prices as a mature and well connected ECN. – Matt Wolf Apr 19 '13 at 1:12

Trading through an ECN is a good idea, FXALL is probably a bad choice since they have such a small market share. Currenex and Hotspot are both better. EBS (in EUR, JPY, and CHF) and Reuters (in GBP, AUD, CAD) have the largest market shares, but they both are expensive to set up and require monthly fees regardless of how much you trade, their liquidity in pairs where they are not the primary exchange is poor, and their technology is atrocious. Currenex would be the top choice for good liquidity in all pairs (about 10% of overall volume, compared to 5% for hotspot, and 1% for FXALL), execution algos available through their API, and general quality of their technology.

It sounds like you may be best suited to using an aggregator, I would not consider Reuters or Integral and I am not familiar with Apama or Portware. I am familiar with MarketFactory and Flextrade. Flextrade is mature technology and will get the job done. It's a simple FIX api to send orders, and you can write your own algos or use some off the shelf. MarketFactory is newer and from what I know about it it's the best off the shelf aggregator, but I have only seen their marketing material, I've never used the product.

@pedro Banks will only give you tight spreads if they are making a lot of money off you, so it's kind of a mixed blessing.

@assylias Fees are under \$5/MM which is less than .1 pips. The aggregate spread on an ECN is going to be tighter than from any single counterparty 90%+ of the time.

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Agree with that point and yes admittedly FXAll is still in its infancy vs. Reuters and ebs. – Matt Wolf Apr 19 '13 at 1:16
@moke any particular reasons why you would not consider Integral or Reuters? Also what is it that you have seen in the MarketFactory marketing material that makes you believe it is superior? – pedro Apr 20 '13 at 9:47

Your aggregator should be coding not just to the FIX feeds but the specialized protocols. FIX just gives the bare minimum. For example, Hotspot's FIX certainly works but is throttled and doesn't have the full market data detail. You need their Itch. For Currenex, you need their Itch and Ouch.

Your aggregator provider should also give impartial advice and give the full functionality of each ECN without making it complicated. The FX ECNs are very different in structure and which currencies they are strong at. For example, EBS is strong in USD/JPY and EUR/USD, Reuters is strong in commonwealth pairs. Hotspot is good at crosses. FXall, Currenex, also the bank APIs each have their uses. Some ECNs and banks are better than others at different times of day, some are better whether you are an aggressor or making prices etc.. It is a very fragmented market.

Ask your aggregator whether they are being paid by the banks or ECNs. Someone mentioned this. If so, it is not an impartial aggregator.

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Just my two cents but both HotspotFX and Interactive Brokers provide what you need on a corporate level. If you want a simple and "clean" solution you're not looking to support several different formats from several different banks and having to manage your liquidity across all those providers.

Hotspot FX
- FIX
- API's: Java

Interactive Brokers
- FIX
- API's: Java, C++, DDE for Excel, ActiveX

Go with FIX.
Fix is supported by both Hotspot, IB and all the major banks. If you develop around FIX you'll have it almost 'plug-and-play' to the major providers. There is also a nice FIX API for your language of choice .Net on QuickFIX.

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Interactive Brokers is not really an institutional FX platform. Hotspot is but has only about 5% share. Good at some crosses. – Nonefaster Apr 20 '13 at 3:03
@Nonefaster would you mind putting some more detail into why IB's not really an institutional FX trading platform? Thanks. – Frankie Apr 21 '13 at 3:42
Hotspot FX also offers Hotspot ITCH for market data feed. "The advantage of this feed is that clients market data will be as accurate as possible and will not have the possible 50ms delay of the snapshot feed." (Source Knight Hotspot FX website). – Taimoor Choudhary Apr 22 '13 at 14:52
@TaimoorChoudhary Are you stating that the difference between an institutional FX trading platform is simply a matter of latency? – Frankie Apr 22 '13 at 14:58
@Frankie I was adding to your answer in which you mentioned Hotspot and there FIX and java API, as ITCH offers lower latency its an advantage for you market data book. – Taimoor Choudhary Apr 22 '13 at 16:00