Enhancing foreign exchange positions with financial research technology

Foreign exchange (FX) is the most liquid sector of all global financial instruments, yet often decisions are made from a limited view of the market. It’s not the fault of the participants, but rather a consequence of them not having the right research tools to discover what would be really useful. Simon Gregory and Rowland Park, Co-Founders of financial research fintech, Limeglass, look at how the FX market can move forwards.

The FX market underpins all international capital flows and many individual investments, and so it is vital that participants can make the right decisions in this $6.6tn-per-day industry. Naturally, whether trading or advising, having access to the correct information at the right time is vital.

The forces of supply and demand come into play. For research publishers, it is a fundamental part of their offer that their material is read and understood by their clients. For recipients, it is crucial that they receive what they need and can easily filter through to ascertain the pertinent points. Informed choices and advice depend on gaining appropriate insights, and thereafter to create differentiated value.

Yet the huge volume of reports to plough through is difficult when the search tools are primitive and the clock is ticking. Applicable information must be surfaced quickly to capitalise on its value.

If, for example, a portfolio manager is researching information to potentially rebalance the weighting of a fund, or when a trader is supporting a client with the execution of a trade, old-fashioned search methods such as scrolling through an email inbox or using the Control+F search function on a text document are too slow. The high volume of reports combined with the multiplicity of sources to analyse not only makes it difficult for real knowledge to be gained, but the consequence is limiting of commercial opportunity.

Keyword-based searches produce very narrow results, as other relevant words and phrases within the context of the subject will be missed. For example, a search on the ‘pound to dollar rate’ would not pick up references to ‘sterling’, ‘cable’, ‘greenback’, ‘GBP/USD’, etc. Other contextual FX market information would also be missed, such as references to the UK interest rate or the US Federal Reserve’s announcements.

Do automated FX trades require research?

Automation has brought efficiencies and a different mindset to the FX industry since the advent of eCommerce and algorithmic trading. Speed of execution, price transparency and cost-savings are great consequences of digital FX.

Yet, automated, execution-only trading is not beneficial all the time. Research and information-based advice, either on a macro portfolio, or deal-by-deal basis remains a key value proposition. Proprietary information held in research is an important differentiator for transaction and fund performance, and critical for client service.

Algo and digitally managed trades still require human input based on FX experience and key influencing market factors. In such a fast-moving and highly liquid market, the pre-set parameters in an algorithm that provided good returns a few days previously may need to be refined if there has been an abrupt change in market activity. Timely access to the right information allows digital risk managers to act swiftly and diligently, based on insights from their corporate peers in research.

Although algorithmic trading plays an important role in the FX market, it should be complemented by human intervention and this, in turn, needs to be supported by relevant information, gleaned from available, high quality and timely research.

Personalising research for better FX outcomes

To differentiate from competitors, research providers should personalise their output, based on their clients’ needs, and demonstrate how their offer is integral to an institution’s digital strategy. For years, technological progress in research has lagged behind that of other financial sectors, but now, innovation is enabling an evolution.

Unstructured reports can be dynamically and instantly transformed into useful structured material through technology, complemented by human expertise. By applying ‘smart’ contextual tags to paragraphs within research documents, relevant topics can be surfaced from a multitude of documents in a single action, generating insights on the macro view of the market down to the most granular snippet of insight.

This not only enables a convenient mechanism for consuming reports but also means that the results are pertinent and relevant, and therefore personalised to the user. A tailored provision of material will better equip any trader, salesperson or investor to quickly assess reports and discover the information they actually need to make the best decisions. 

For the research publisher, this approach provides valuable metrics on readership to ascertain not only which reports were read, but which specific parts of individual reports were deemed most significant, providing statistical feedback that can guide the creation of future publications.

The ability to refine output should lead to customer loyalty and have a positive commercial benefit to both the research producer and its clients.

What next for financial research in the FX market?

Greater operational choice in FX trading has led to a wider variety of participants and increased competition for market share. Differentiation is required to show unique value, and this may be achieved through the strategic use of research.

Volatility in the currency markets also highlights the need for quick access to time-sensitive information to gain real insights. There must be a transition from the ‘not knowing what you don’t know’ scenario, to discovering new material that can have a genuine impact. Surfacing the hidden value of existing content allows teams to improve performance and profitability.

For further operational progression, reports can be linked to execution platforms so that relevant research is automatically, dynamically and intuitively available at the point of trade. In this way, hidden insights become part of the trade decision process, and email alerts and news notifications can ensure that the user is kept up to date with the latest information.

Through the adoption of smart technology, financial research becomes a strategic tool that provides a competitive edge and forms an essential part of the user’s wider technology ecosystem.