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HSBC FX Time-Weighted Average Price (TWAP) Algorithm: Innovative Access To HSBC's Unique Network of FX Liquidity

The HSBC FX TWAP algorithm aims to execute a client's foreign exchange order over a specified time period to achieve a price close to the time-weighted average market price during that period, while minimizing transaction costs and market impact. It does this by executing across HSBC's global liquidity pools. Clients can customize parameters like order size, currency pair, timeframe, and execution style (passive, neutral, aggressive). Execution is dependent on available liquidity and market conditions.

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317 views2 pages

HSBC FX Time-Weighted Average Price (TWAP) Algorithm: Innovative Access To HSBC's Unique Network of FX Liquidity

The HSBC FX TWAP algorithm aims to execute a client's foreign exchange order over a specified time period to achieve a price close to the time-weighted average market price during that period, while minimizing transaction costs and market impact. It does this by executing across HSBC's global liquidity pools. Clients can customize parameters like order size, currency pair, timeframe, and execution style (passive, neutral, aggressive). Execution is dependent on available liquidity and market conditions.

Uploaded by

Dev Gogoi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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HSBC FX Time-Weighted Average Price (TWAP)

Algorithm
Innovative Access to HSBC’s Unique Network of FX Liquidity

What the Algorithm aims to achieve


The HSBC FX Time-Weighted Average Price (TWAP) Algorithm aims to achieve an execution price close to the time-weighted average mid price observed in the primary market during the
execution period specified by the client. The Algorithm seeks to minimise slippage against this benchmark by either remaining passive or crossing the spread opportunistically in reaction to
short-term market asymmetries. Executions are designed to minimise transaction costs and footprint by executing the order across HSBC’s unique network of FX Liquidity Pools, whilst
efficiently maintaining the TWAP schedule and aiming to achieve full completion at the client-specified End Time.

Specify the following parameters to meet your execution requirements


Trade parameters:  Currency Pair  Execution Currency  Direction  Order Size

Algorithm-specific parameters: Percent (of total order size)


100%
Start/End Time max
By default, the Algorithm starts immediately and expires at date roll time of the corresponding currency pair
(typically 5 pm EST). The client has the option to specify a later Start Time and/or an earlier End Time. In any
case, if the order is not completed by the End Time, a partial fill is returned.

Limit Price (optional)


If specified, the Algorithm will consume liquidity at prices no worse than the Limit Price. This may prevent the min
TWAP algorithm from achieving full completion. A(t)
Liquidity Pool
Choose which FX Liquidity Pools (Market and/or HSBC liquidity) to interact with, balancing the trade-off between
execution cost and information leakage.
Execution Style
Choose between Passive, Neutral and Aggressive Styles according to your level of market volatility risk aversion.
Start Time End

Three different Execution Styles for different scenarios


 Use this Style when comfortable to take on the risk of market volatility, and aiming to minimise execution cost
Passive  Allows greatest flexibility for the Algorithm to vary order slice size executed per unit of time. The Passive Style aims to minimise price-taker behaviour whilst
minimising slippage
 Use this Style when there is a perceived equilibrium of buying and selling behaviour in the market so as to articulate deviations from the target execution
Neutral
trajectory in a balanced manner
 Use this Style when trying to strictly adhere to the TWAP schedule, resulting in relatively equal order portions being executed in relatively equal time intervals
Aggressive
 Expected to cross the spread most frequently amongst the three Styles
Amendment: during the execution, you are able to amend the Order Size, End Time, Limit Price, Liquidity Pool or Execution Style should your requirements change.

Execution risk
The execution risk associated with the use of the HSBC FX Time-Weighted Average Price Algorithm resides with the client, not HSBC. If a Limit Price is specified and the market price moves
considerably or liquidity is insufficient during the execution of the order, the Algorithm may not achieve full completion. Due to uncertainty of legged executions for illiquid currency pairs, there
may be market conditions in which HSBC is not able to guarantee the Limit Price on child fills. Execution will ultimately always be liquidity-dependent, eg if the market becomes distressed, the
Algorithm may fail to complete the order before the End Time. HSBC may be active in the market with its own orders at the same time of a client order. Although HSBC and client orders are
treated independently, they may interact in the market and compete for the same liquidity.

Please contact us for further information: fxalgo@hsbc.com


HSBC FX TWAP Algorithm on Evolve

Disclaimer
This document is issued by HSBC Bank plc and has been produced by a member of the Sales and Trading Department of HSBC Bank Plc
and/ or its affiliates, collectively known as (“HSBC”) and not by HSBC’s Research Department. and does not constitute investment advice.
Investors must make their own determination & investment decisions. HSBC has based this document on information obtained from sources
it believes to be reliable but which have not been independently verified. Any charts and graphs included are from publicly available sources
or proprietary data. Except in the case of fraudulent misrepresentation, no liability is accepted whatsoever for any direct, indirect or
consequential loss arising from the use of this document. HSBC is under no obligation to keep current the information in this document. You
are solely responsible for making your own independent appraisal of and investigations into the products, investments and transactions
referred to in this document and you should not rely on any information in this document as constituting investment advice. Neither HSBC nor
any of its affiliates are responsible for providing you with legal, tax or other specialist advice and you should make your own arrangements in
respect of this accordingly. The issuance of and details contained in this document, which is not for public circulation, does not constitute an
offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or
investment agreement, or any other contract, agreement or structure whatsoever. This document is intended for the use of clients
categorised as Professional Clients or Eligible Counterparties under the rules of the FCA, and is not intended for Retail Clients. This
document is intended to be distributed in its entirety. Reproduction of this document, in whole or in part, or disclosure of any of its contents,
without prior consent of HSBC or any associate, is prohibited. Unless governing law permits otherwise, you must contact a HSBC Group
member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this
document.

HSBC Bank plc


Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority
Registered in England No. 14259
Registered Office: 8 Canada Square, London, E14 5HQ, United Kingdom
Member HSBC Group
September 2019

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