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August 1, 2010

FlexTrade Jumps Cross-Currency

By James Ramage

FlexTrade Systems wants to help equities traders do pairs and risk-arbitrage trades in different currencies. The execution management system vendor introduced an algorithm, FlexSpread, that does both for buyside and sellside traders. The algo, which requires broker connectivity to the markets, comes with FlexTrade's FlexTrader EMS or as a stand-alone product.

Pairs and arb strategies profit from small pricing discrepancies, usually by buying one instrument and selling another highly correlated security. In this case, traders can execute a pairs trade in two securities denominated in different currencies. So a trader in Paris can, for example, trade a pound-sterling-denominated security like Barclays in the U.K. market against a euro-denominated security like BNP in the home market, while leaving any balance in euros, his reference currency.

FlexSpread also lets traders automatically hedge out their currency risk, said Max Palmer, director of algorithmic solutions at FlexTrade. That means, as in the case above, if a trader is balancing in euros, "every time he gets an execution on the London Stock Exchange, the algo can hedge out that pound sterling risk immediately in the amount of that fill," Palmer said.

FlexTrade plans to add other asset classes to its spread-algo strategy.

 

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