Can FinTechs Reduce Market Impact?

14 Jan 2021, 16:55

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David Fineberg, deputy CEO at CMC Markets, spoke to FX Markets Magazine in September 2020 to discuss the advances of FinTechs in forex markets, looking specifically at the market impact they cause and whether more can be done to manage this.

Changes in the underlying market structure have driven innovation, with a number of smart developments having been seen in recent years. However, is there a risk that some of the technology-based solutions fail to take account of the impact they can have on market prices, especially once they are deployed at scale?

The reduction in availability of prime brokerage led to market impact being more pronounced, but the correct application of technology can have a mitigating effect here. Using a liquidity provider (LP) rather than straight through processing (STP) model can also deliver benefits in this regard, whilst the ability to leverage an internal order book again helps with confidential price construction.

That however underlines how it’s not just about liquidity. You need the best in class associated financial technologies and consultative services too. By combining all these facets, and ideally from a single source, market participants can genuinely do their bit to limit negative price impact.

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