Why does a hedge fund appeal to Forex?

Author: Baiana Kashaeva

With the continuous growth and popularity of the MT5 platform and FIX API trading, we see more and more hedge funds entering the currency markets to try out the opportunities that both the platform and the Forex market provide.

While volatility remains the top factor for any hedge fund, there are still other reasons that make forex trading appealing:

  • Margin trading creates significant potential for hedge funds. The ability to use leverage allows even smaller funds with just $10 mln to achieve great results, rather than in the equity markets.
  • Deep liquidity. It's not only the continuously streaming prices from numerous liquidity sources that matter, but also the ability to move large volumes with tight prices and different options to get the best execution. With an advanced liquidity aggregation engine, a fund has better control over execution and can create several liquidity pools to connect them to every trading model they use.
  • High speed of execution is crucial, and electronic trading is fast enough to support the most advanced and dynamic trading strategy, where even a tiny speed improvement can bring an additional 20-30% of revenue.
  • Automation. As a technology provider whose primary focus lies in the automation of trading and the processes around it, we have observed that the automation of the transaction cycle has become more and more important for active traders overall. Instant download of trading details for analysis or audit not only saves a lot of time but also gives the ability to change the approach and make decisions fast and right on the spot, as reporting tools collect pricing and transactional data online on one screen.

What does one need to have for better performance?

To achieve faster execution, funds need to choose a platform that delivers high-speed connectivity through an API or FIX interface.

MT5 platform

MT5 is a stable platform and easy to integrate with an API if a hedge fund wants to trade at forex and use different models or robots. With its help, a hedge fund can create a multi-asset infrastructure using just one interface. The popularity of the platform has created a large number of players who design, support, and enhance its functionality. Thus, there is no need for a fund to hire a team to get to know the platform's specifics because there are many professional companies that will provide relevant services and take care of technical settings, connectivity to liquidity, and reporting.

FIX API trading

FIX API trading eliminates the need for MT5 and instead provides Direct Market Access with the help of a built-in margin engine, which will improve the speed. In such a setup, there will not be anything else between a fund manager and the market, just the FIX API technology.

The trading results of each model will be displayed on one screen, showing key parameters: floating profit, margin, balance, and equity. Each transaction will be easily identified and show the price it's been executed with and the source of execution. From a technical perspective, a hedge fund integration will happen just once, while the technology partner takes care of further integrations to different LPs or banks. Again, this is a time-saving scenario from the very beginning and further when the maintenance is required to update the FIX API to the most recent LP specifications.

Apart from the very technical aspects, the FIX API platform has different security levels, the ability to use different strategies with multiple accounts, and access to detailed online statistics for all data.

No matter which method the fund chooses, we at Tools For Brokers are ready to support both options. Our offer includes additional services, such as hosting and MT5 maintenance because we understand that very often, hedge funds come from different markets and do not have experience with the technical setup at Forex.

Therefore, one can go with either:

  • MT5 Hedge Fund license and the TFB FIX API or
  • The TFB FIX API for Direct Market Access.

We provide full support for the MT5 environment, and we have our own FIX API platform.

Both options offer hosting services, which also play a key role in achieving a high speed of execution, as choosing the right location of servers and correct hardware configuration can drastically affect performance.

For fund managers who value transparency and aim to provide the same to their customers, we can also integrate the PAMM system for investors to access their accounts and funds. They'll monitor activities online through a laptop or smartphone, which will only increase the trust in the chosen hedge fund.

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