(Dow Jones via eFXnews) As companies do the day-to-day currencies deals they need, their banks are increasingly offering them new partners: robots.
Super-speed algorithms, affectionately known as algos, are typically favored by profit-seeking funds and other trading firms. But some banks say they are finding demand for these trading tools in the slower-moving corporate sector. Competitive pricing is luring firms in, along with fancy widgets to limit the market impact of trades by slicing them into tiny chunks.
"At the moment, very few corporates use algo execution for their hedging, but in my opinion, we will see this being used more by corporate clients in the future," said Frederic Jeanperrin, global head of FX and interest rate derivative corporate sales at French bank Societe Generale in London.
In foreign exchange--the most liquid financial market--algos can be used to generate up to 500 orders a second. Funds are big fans of this trading method, seeking to make hefty returns in tiny increments. The Bank of England reckons up to a quarter of spot FX transactions in London come from high-speed trading accounts.
But Jeanperrin said big companies such as oil firms can find trade-slicing useful, particularly when doing big currency conversions for, say, dividend payments. Instead of effectively paying banks to chop trades up, firms can use algos, and do it themselves. The trades are still executed on the banks' own platforms.
Societe Generale is not alone in pushing these high-end trading tools to companies. "A sector of our client base...has always been interested in this sort of execution," said Liam Hudson, global head of FX e-commerce at the Bank of America Merrill Lynch in London. "We see an increased focus on this form of execution and are constantly improving our offering on multiple venues."
For now, algorithmic hedging is for the big firms, but as technology and experience in this space builds up in the next two to three years, more companies could decide to join the party, Societe Generale says.