June 29, 2021 | Stamford, CT — An increase in the use of algorithmic trading might be one of the most lasting effects of the COVID-19 era on global foreign exchange markets. 

A new study from Coalition Greenwich finds that the disruptions caused by the COVID-19 crisis may have long-term effects on the behavior of FX market participants. At the onset of the work-from-home government mandates, traders turned to their most well established and trusted relationships to navigate the volatility—often via the telephone. However, many traders also increased their use of algos as a means of accessing much-needed liquidity and now despite many traders returning to the office, they expect their usage of algos to continue moving forward. 

More than 40% of financial FX traders employed algos in 2020. Nearly the same share expect their usage of FX algos to increase in the next year. 

“Financial institutions are looking at the efficacy of their algo strategy and are finding that algos can be highly effective, especially at working particularly large orders over time,” says Brad Tingley, Research Manager in the Coalition Greenwich Market Structure and Technology group and author of FX Trading Beyond the COVID-19 Crisis.

The new report summarizes the impact and lasting effects of the COVID-19 crisis on global FX markets. At a top-line level, the results show that multi-dealer platforms (MDP) remain the most widely used venue type among both financial and corporate FX market participants. Despite the popularity of MDPs, the initial onset of the global pandemic caused a surge in the use of phone/voice execution as market participants called on individual dealers with whom they had strong relationships for liquidity and support navigating the tumultuous market. 

The study results also reveal another important change during the crisis. For many, the work-from-home environment required behavioral changes from traders no longer sitting on the trading desk in the office. For example, APIs gained popularity among FX market participants last year as did auto-execution with roughly 30% of financial investors utilizing it as a cost containment measure in 2020 and another sizable share saying they would use auto-execution if were available. 

“The COVID-19 crisis further highlights the importance of relationships despite the highly electronified nature of the FX market,” says Brad Tingley. “It also beckoned some noteworthy behavior shifts such as the use of algos and developments in auto-execution that are likely to persist in the coming years.”