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Refinitiv survey finds Forex spreads and access to liquidity are the ‘biggest challenges’ during the lockdown



Financial markets data and infrastructure provider Refinitiv released a survey which shows that managing Forex spreads has been the biggest trading challenge since the pandemic and the lockdowns began.

Over 1,000 traders participated in the global survey of which 50% percent chose spreads as their biggest challenge, followed by access to liquidity with 24% of respondents and 14% of respondents had no issues.

Hedge funds and banks felt the spreads issue more considerably with 68% and 57% respectively saying this was their biggest challenge, as opposed to only 35% of corporates.

Banks had problems with access to liquidity with 31% chose this answer compared with much smaller percentages from the other client segments.

Jim Kwiatkowski, Global Head of Transaction Sales at Refinitiv, said:

Jim Kwiatkowski, Refinitiv
Jim Kwiatkowski
Source: Refinitiv.com

The changes to spreads during this period have been well documented. Spreads widened as volatility increased and providers became concerned about client credit. This was clearly a market-wide impact, but one that was mitigated, at least partially, by the utilization of trading tools to aggregate available relationship pricing and find that elusive ‘best price’.

Many clients have taken advantage of auto execution capabilities for smaller orders so that they can focus on their larger, more difficult to execute orders.

We also saw a significant uptick in interest in sourcing liquidity from our Primary Market, Matching, which has traditionally underpinned FX price discovery and pricing by liquidity providers. This reflects a flight to quality as the trading community opts for the certainty of firm pricing and low rejects to deal with more difficult market conditions.

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Execution methods

The survey also covered execution methods and their reliability and concluded that the top choices were Streaming Risk Transfer, chosen by 65% of respondents, and Primary Market Execution, chosen by 24%.

Banks were more enthusiastic to trade on the Primary Market because they found it the most reliable mechanism to get their executions completed. Most buy-side participants went for immediate risk transfer to their relationship banks. Nonetheless, 70% of corporate and asset managers preferred Streaming Risk Transfer.

Jim Kwiatkowski commented:

The balance of the answers highlighted an increased use of tools to automate the workflow around a voice trade and algorithmic execution.

The results also clearly show that request for quotation was the most reliable way of getting FX business done for a very significant proportion of the market.

The increased use of Send Details, which allows trades to be agreed by voice, but then automates the booking through normal Straight Through Processing, suggests that many clients opted for electronic trading tools, even for voice trades, to reduce the risk of booking errors and satisfy compliance concerns.

Communication

30% of responded said that communication with colleagues as the biggest challenge in transition to work from home, followed by market conditions on 23% and communications with clients/dealers on 19%.

Jim Kwiatkowski  said:

Difficulties in communicating could be part of the reason why electronic trading was found from the survey to be far more reliable for our participants than ‘Voice risk transfer’.

It also shows that instead of reverting to old-world methods (voice), the market is now so far down the path of electronification that it pushed even further in this direction as the crisis evolved.

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Refinitiv survey finds Forex spreads and access to liquidity are the ‘biggest challenges’ during the lockdown

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