How algo trading is evolving for business (2024)

Algorithmic trading has been a topic of discussion among large institutions in Australia for some time, but such talk has yet to convert into high take-up of the practice. Now, developments in the technology and improved access to the capabilities — as well as the key advantages it can offer businesses — is finally driving increased interest.

Indeed, the industry has turned a corner over the past three years. As bankers, we’ve noticed a distinct shift in the nature of the conversation around the technology colloquially referred to as ‘algos’. Where previously talk of such trading would often be met by blank looks and a lack of interest, today we encounter customers asking about algorithmic services unprompted – seeking to manage large FX risks more efficiently.

In our view, this is due to increasing awareness of the capability of the tech and its benefits. Many corporates are increasingly choosing to self-serve and manage their FX risk through their own treasury operations, seeking direct access to liquidity through integrated cash-management and/or multi bank FX-liquidity platforms.

In addition, algorithmic trading can reduce the cost of execution around FX risk. Furthermore, the practice provides regulatory benefits, assisting with obligations around transparency and fiducial obligations, particularly for real-money asset managers using this type of execution for spot FX flows.

We estimate around 20 per cent of spot execution flows currently occur through direct market access or algorithmic execution strategies on behalf of banks and professional market counterparts – potentially hundreds of billions of dollars a day. These estimates will be validated later in the year when the BIS (Bank of International Settlements) releases its Triennial FX Survey.

It is clear algorithmic trading is growing as a preferred tool of execution in the market for investors and institutions.


There’s no doubt the Australian market has lagged international peers when it comes to algorithmic trading, although not to an extent any greater than other financial-market developments.

But over the past few years, we’ve watched a trend develop through digitisation in financial services, then self-service execution for spot trading, and now into the algorithmic piece.

Left behind is a superseded policy of risk-transfer pricing where customers would need to contact their relationship manager directly to quickly shift risk from their books, or hedge against currency exposures. Now all of that happens with a few clicks of a mouse – with the risk managed and the execution cost lowered.

Cost is a major benefit of algorithmic trading on several fronts. For many large institutions, managing dividend conversions or merger and acquisition transactions brings an obligation to use the most cost-effective liquidity they can access. Here transactional cost analysis becomes quite pertinent, and algos provide for that.

We’ve seen this developing as a trend. Volatility remained low on financial markets in the lead up and during the early parts of the COVID-19 crisis. During this time some businesses began using algorithmic trading to reduce their execution costs.

As bankers, we suspected this would not last forever as volatility picked up. But in the end, the opposite occurred, and we’ve seen increased use of algorithmic trading services.


ANZ has been doing its part to invest in the sector and our customers, recently releasing a new dynamic algo to complement its existing trade-weighted average price (TWAP) offering.

It’s part of the capability ANZ has developed around its own wholesale FX liquidity exchange, which it has done over the last ten years in the form of a proprietary liquidity aggregator. This has brought together various fragmented pools of FX liquidity into a central exchange ANZ can access, made up of direct bank liquidities along with other various networks in primary markets. The bank has 24 separate API connections feeding into its global liquidity aggregator.

ANZ’s algorithmic trading services provide direct market access to those liquidity pools through algorithmic execution. And while other global banks have developed a similar capability, ANZ’s proprietary capabilities are unique in design and access to liquidity, where as its peer banks tend to use vendor based or ‘white-label’ solutions.

To offer one example, a major client of ANZ in the resources industry uses our algo service to continually hedge currency risk on their operations in the Asia Pacific. The group applies the services as part of their invoicing process – and reaps the benefits.

ANZ’s service has also been an attractive proposition for businesses with larger proprietary flows, especially around M&A transactions which expose various parties to currency risk. They turn to ANZ because of this capability - and our expertise - to hedge.


The compliance elements of algorithmic trading are another attractive factor of algos. Large institutional groups can use algorithmic trading tools to demonstrate their compliance with hedge policies. Additionally, they provide a critical audit trail of how the trade was executed in the market.

Users are attracted to the transparency of many algorithmic systems, which can provide clear reports around the inflows into market, including transactional cost analysis. The tech provides business with the ability to demonstrate they are acting in the best interest of their customers alongside their digital obligations.

In Australia, no formal guidance is in place specifically for algorithmic trading from local regulators, although there is influence from the United Kingdom’s Financial Conduct Authority (FCA) . In a bid to ensure our customers have faith in our services, ANZ follows the FCA recommendations as well as attesting to the recently updated GFXC ‘Global FX Code of Conduct’.

In our work, ANZ helps customers with treasury management capabilities that face obligations to be audited on an annual basis, or provide a transactional cost analysis that shows they are adhering to best-practice execution. Algorithmic trading tech provides for that.

Done correctly, algorithmic trading is safe and secure for users. At ANZ, when flows are executed, they are not executed by principle risk-taking teams. Information is segregated and treated with the highest degree of confidentiality. This removes various market signals related to superseded FX risk measures, providing an additional advantage to users.

The opportunity is vast, and at ANZ, we’re excited about it- for the bank, and our customers.

Luke Marriott is Head of eFICC Markets & Joel Marsden is Director, Systematic Dealing eFICC


How algo trading is evolving for business

Luke Marriott & Joel Marsden

Head of eFICC Markets & Director, Systematic Dealing eFICC



As a seasoned expert in algorithmic trading with a deep understanding of the financial markets, I can confidently affirm the significant impact algorithmic trading has had on the landscape of financial services, particularly in Australia. The article touches upon key concepts related to algorithmic trading, and I'll provide a comprehensive breakdown of these concepts.

  1. Algorithmic Trading Overview:

    • Algorithmic trading involves the use of computer algorithms to execute trades in financial markets. These algorithms are designed to analyze market data, identify trading opportunities, and execute orders at optimal prices.
  2. Market Trends in Australia:

    • The article highlights the recent surge in interest in algorithmic trading among large institutions in Australia. This shift is attributed to advancements in technology and improved access to algorithmic capabilities.
  3. Increased Awareness and Adoption:

    • There is a noticeable increase in awareness among corporates regarding the benefits of algorithmic trading. Corporates are now opting for self-service models to manage their foreign exchange (FX) risk efficiently. Direct access to liquidity through integrated platforms is a key driver.
  4. Cost Reduction and Regulatory Benefits:

    • Algorithmic trading is recognized for its ability to reduce execution costs, especially in FX risk management. Additionally, it provides regulatory benefits by assisting institutions in meeting transparency and fiducial obligations, particularly for real-money asset managers.
  5. Current Market Share and Estimates:

    • The article estimates that around 20% of spot execution flows are currently managed through algorithmic execution strategies, potentially accounting for hundreds of billions of dollars a day. Validation of these estimates is expected with the release of the BIS Triennial FX Survey.
  6. Evolution in the Australian Market:

    • The Australian market has historically lagged behind international peers in adopting algorithmic trading. However, recent developments in digitization and self-service execution have paved the way for increased adoption of algorithmic strategies.
  7. ANZ's Role and Investment:

    • ANZ has played a significant role in advancing algorithmic trading in Australia. The bank has developed a proprietary liquidity aggregator over the last decade, offering unique algorithmic trading services with direct market access.
  8. Benefits of ANZ's Algorithmic Trading Services:

    • ANZ's algorithmic trading services, including the recently released dynamic algorithm, provide cost-effective liquidity solutions. The bank's unique design and access to liquidity distinguish it from peer banks using vendor-based or 'white-label' solutions.
  9. Compliance and Transparency:

    • Algorithmic trading offers compliance benefits, allowing institutional groups to demonstrate adherence to hedge policies. It also provides a transparent audit trail of trade execution, ensuring accountability and meeting regulatory expectations.
  10. Safety and Security Measures:

    • The article emphasizes that when executed correctly, algorithmic trading is safe and secure for users. ANZ ensures confidentiality by segregating information and executing flows through dedicated teams, minimizing risks associated with outdated FX risk measures.

In conclusion, the article provides a comprehensive overview of the evolution and benefits of algorithmic trading in the Australian financial market, with ANZ at the forefront of these developments. The increased adoption is driven by cost-effectiveness, regulatory advantages, and the transformative impact of technology on traditional financial practices.

How algo trading is evolving for business (2024)


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