Last month I was honored to participate in the TradeTech FX annual conference in Miami, FL, and to assist by hosting a keynote interview and moderating a panel discussion. Thanks to the TradeTech team, the conference was a very well-attended event with over 600 attendees and full of lively discussions, informative speakers, and, yes, one or two relaxing diversions.
Artificial intelligence (AI) and machine learning (ML) is of particular interest to me because, not only am I a practitioner, I’ve also helped financial institutions apply AI to solve real business problems. So, my keynote interview with Manu Chaudhary of DMALink, an FX trading platform, was near and dear to me. DMALink discussed how they have harnessed the power of a branch of ML known as deep learning to not only help users manage liquidity, but also provide them with signals to spot transaction anomalies. Leveraging the power of the latest innovations in GPU hardware, computer vision, and ML technologies, DMALink’s platform claims to be able to substantially compress the time required to obtain a clear picture of FX trading liquidity.
The lively discussion was further enhanced by the participation of Aaron Hurd, a Senior Portfolio Manager of currency for State Street Global Advisors. Aaron’s probing questions regarding the application of AI in FX trading and the implications of predictive analytics in this market were very insightful. For example, if your AI model predicts an upcoming anomaly, and AI is then widely adopted across market participants, wouldn’t the impact of the anomaly be accelerated?
Thanks to both Manu and Aaron for their participation. The key learning here is that AL/ML is beginning to be applied to real world trading problems—and is set to become an important arrow in the quiver for trading desks.
My second duty was to moderate a panel discussion on the current state of cryptocurrency trading for institutional investors. According to conference speaker David Mercer, CEO of LMAX Group, the cryptocurrency market cap was currently about USD2.5TN. The overall currency market cap is currently USD250TN, so cryptocurrency is about 1% of the overall currency market. However, when you consider that the crypto market has grown to that number over just the last few years, it’s certainly making financial institutions sit up and pay attention.
The panel—the most popular session of the day, attended by hundreds of FX professionals—consisted of industry leaders in crypto trading technology infrastructure including John Evans, Head of Digital Asset Strategy, Vanguard; Dmitri Galinov, CEO & Founder, 24 Exchange; Rosario Ingargiola, Founder & CEO, BOSONIC; and Konstantin Shulga, CEO and Co-Founder, Finery Markets. We asked questions of the audience and discovered the following insights:
Poll 1: What is holding you back from embracing crypto as an asset class?
Forty-two percent of respondents said that the reason why they are not currently actively trading crypto is because of inadequate risk controls, closely followed (37%) by the lack of settlement infrastructure. Most respondents agreed that the platforms for trading crypto are largely in place.
Poll 2: What is the Maturity of your Organization’s Cryptocurrency trading?
More than half of the audience (52%) claimed that their organization is actively trading crypto, while only a quarter are not. The remaining participants are testing potential strategies. Does this mean that institutional cryptocurrency is becoming more mainstream? One obvious answer is yes, but given the audience’s focus is currency trading, this statistic might be skewed by the representative sample.
Poll 3: What is the purpose of your cryptocurrency trades?
When exploring the purpose of their cryptocurrency trades, in a multiple choice poll, opinions were evenly split between arbitrage, diversification, and speculation.
Poll 4: What are the key criteria for choosing an execution venue?
Ease of execution and access to liquidity were considered the key criteria when choosing an execution venue. While this is not particularly surprising, what is interesting is that execution/liquidity (52%) trumped regulation and jurisdiction reputation (35%) as being a key consideration. However, we should consider this result in the audience context of FX market participants, as FX is less highly regulated than asset classes such as equities and fixed income.
Poll 5: How much does the environmental impact of blockchain processing affect your choice of coin?
ESG and climate are front-of-mind for many financial institutions now because of the energy required to facilitate mining of cryptocurrencies that rely on the proof-of-work consensus mechanism—bitcoin being a prominent example. Clearly, not all cryptocurrency is environmentally friendly, but some do use alternate consensus mechanisms, such as proof-of-stake, that do not require the same computing power as proof-of-work. So, I posed the question as to whether environmental impact was a consideration when investing in a particular cryptocurrency, and only 22% of respondents declared that it was. The rest of the audience were equally split between “Not at all” and “A little.”
My final question was more infrastructure-related. Celent is following the announced strategic partnerships between public cloud vendors and trading venues, and wanted to see how many of the FIs in the audience have embraced cloud for their trading platforms. Two thirds (67%) of respondents have migrated their trading infrastructure into the cloud. That’s quite an adoption rate and is in keeping with an insight we gleaned from our recent Insight and Innovation Week capital markets panel discussion, in which cloud adoption was sighted as a major technology driver for capital markets participants.
It was an enjoyable conference all around, and one key takeaway I have is that, while there remains hesitancy by financial institutions to fully embrace cryptocurrency trading, the topic of how to do it safely in a regulated environment remains as hot as the Miami sun.