David Ogg, who pioneered the use of algorithms in the international currency trading markets, argues that best execution in foreign exchange has been sorely lacking for the institutional buy side. To fill that void, the founder of electronic FX trading platforms Hotspot FX and LavaFX is rolling out Ogg Trading, a system that uses algorithms to sweep the markets for the best execution prices.
Ogg, whose latest venture is slated to debut during the second half of 2011, says the system also features software that makes decisions on which strategies a trader should use. "We're putting a lot of work into some very clever algorithms that analyze the markets and ensure that the ideal trade is made at the ideal time," he explains.
"These tools are going to help traders increase their profitability and ensure that each time they go out to trade, they're doing so in a manner that statistically gets them the best opportunities to trade at the best price."
In order to get his new company off the ground - and gain access to sophisticated algorithms - the firm entered into a strategic partnership with trading system provider Pragma Securities, according to Ogg. The arrangement will allow the start-up operation to feed off of Pragma's experience in building algorithms and aggregating liquidity, and convert it into improved execution capabilities for FX traders, Ogg says.
On the other hand, the partnership enables Pragma - which has enjoyed success in the equities market - to gain a foothold in the global currencies space.
"Partnering with them was a no-brainer. They've got a great reputation in equities as far as providing advanced execution capabilities to their clients," Ogg explains. "So we'll take some of their products and put some of our own sauce on top of it, which will help us get to market quicker."
Can Lightning Strike Twice?
Meanwhile, Ogg says, he sees parallels between his new company and his other brainchild, Hotspot FX, which launched in October 2000. Hotspot, which was sold to Knight Capital in 2006 for $77.5 million, was the first to offer an FX electronic communication network to the institutional buy side. It also enabled traders to make deals anonymously.
"When I started Hotspot, the buy side had no direct market access," Ogg recalls. "Now access is plentiful and there's all sorts of places people can trade, in all sorts of manners. But do you actually make sure you're doing the right thing every time?"
At the time of its sale to Knight Capital, Hotspot had grown into one of the world's largest multibank trading systems for FX. More than a decade later, Ogg wagers he'll be able to flip yet another inefficiency in the FX market into an industry force.
"Best execution standards in FX are not where they need to be and have consistently lagged other markets," Ogg insists. "When traders calculate the cumulative effect of not achieving best execution, they realize this has a major impact on their bottom lines."