Execution Speed Under Further Scrutiny - ParFX Proves Value of Randomization Design

Friday, 24/05/2013 | 13:16 GMT by Andrew Saks McLeod

Tradition's ParFX proves value of randomization process 1 month after the spot FX platform made its entrance to the market as a result of concerns over trading advantages from high speed computers.

Execution Speed Under Further Scrutiny - ParFX Proves Value of Randomization Design

A month has passed since Swiss firm Tradition launched its ParFX spot forex trading platform. True to form, the company did not rest on its laurels subsequent to launch, and has now completed a developmental period to ensure that the platform's ‘randomisation’ process is working exactly as intended when conceived in 2010 by the FX Pure initiative.

ParFX is the first Trading Platform ever to implement this process amid rising industry concerns about the trading advantage those with the fastest computers may have. This is yet another example of the industry attempting to level the playing field in the midst of the high speed excecution arms race in which many technology companies have been raising the game over recent weeks.

Events this week have demonstrated the will of technology firms to ensure that their execution speed is within the 1 to 10 microsecond bracket, exemplified by many companies such as Redline Trading Solutions and CFN Services pairing up with executing venues in North America to cater for the ever increasing requirements for ultra low latency from groups such as algorithmic traders and proprietary trading groups.

Interestingly, ParFX is not based in North America. As a European firm, the company is not party to the 'developer vs regulator' cat and mouse situation that is currently taking place in the United States. This therefore demonstrates a European industry participant taking steps (albeit different ones) outside of the American continent to level the trading playing field.

From Concept To Reality

The ParFX platform underwent an eventful development period, firstly attracting support from banks, and then changing its name pre-launch from TraFXpure to ParFX. Trading began in mid-April, and analysis of the first month’s trading data shared with the 11 founder banks is “proof of concept”, according to ParFX’s Chief Operating Officer, Roger Rutherford.

During the testing phase leading up to the launch of the platform, support was present from major financial institutions, further reinforcing the notion that banks are still keen to show interest in new platforms.

“On top of the many months of testing, the live production trading over the past four weeks has allowed us to perform detailed analysis, ensuring the platform design works as the founder banks intended”, explained Mr Rutherford. “The meaningful randomisation window of between 20 and 80 milliseconds is the fundamental element of that design and I’m delighted to say that the results show it is behaving exactly as the founders – and Tradition – planned.”

In a trading environment that is becoming increasingly time critical, this is quite a move by Tradition. EBS has recently been investigating the possibility of implementing a latency floor of between 3 and 10 milliseconds across all venues to which its feed is supplied, however when bearing in mind that some technology companies are able to reduce latency to 1 microsecond, the time delay is maginfied exponentially.

Checks and Balances

ParFX applies a randomised pause to all orders elements; amendments, cancellations and confirmations. This process is designed to encourage a level playing field for participants wherever they are located and whatever their technological or financial strength. Randomisation is configurable by currency pair and all trade attributes to allow optimisation and ensure adaptability of the trading environment.

Mr Rutherford explained in a company statement: “Everyone involved with ParFX is very pleased with the progress to date. We already have good price discovery in 11 pairs and are working on extending this across all of our currency pairs. Our focus now is on extending our global reach and participation as we on-board the next round of banks and increase the available Liquidity pool.

“I’m delighted by the founders’ drive and desire to ensure the success of ParFX and that their thought leadership expectations are being met. It’s extremely validating to have the backing of some of the biggest market participants, who recognised that a different way of FX trading was essential.”