Traders prepare for HFT shift into emerging markets

images (6)Better infrastructure and deeper liquidity is attracting high-frequency traders to exploit EM currencies, say traders and technology providers

The effects of high-frequency trading (HFT) on developed foreign exchange markets have been well-documented in recent years, but signs of HFT are now also beginning to appear in emerging markets as improving infrastructure and liquidity attracts  high-frequency players as a viable alternative to G-10 currencies, where increased regulation and compressed spreads have made it tougher to generate returns.

“We’ve seen a couple of machines being turned on in spot offshore renminbi (CNH) – we notice it because generally speaking with something like the Chinese currency we deal in five-pip increments, but the machines will put in a deal in one-pip increments. We’ve seen a bit of that on USD/CNH,” says the head of emerging markets trading at one European bank.

Other traders have also noticed similar changes; as liquidity increases in certain emerging currency pairs, there has been a corresponding rise in algorithmic trading and shorter-term, higher-frequency models, says Eugenia Hanoune, head of FX electronic commerce for Europe, the Middle East and Africa at Citi in London.

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