An online guide to more efficent automated FX trade execuTion for buyside firms

A-Z Glossary


Broadly refers to a step-by-step procedure used for calculation or analysis. A wide range of computer programs – not limited to automated trading systems – are often made up of many algorithmic steps, often shared across multiple programs within the same organisation. An algorithm used within an automated trading system defines a set of instructions on when and how to submit, revise or cancel an order.

Algorithm wheel:

Third-party algorithms used to allocate transactions between various execution algorithms.


Application Programming Interface, an interface allowing the connectivity between several data feeds or trading tools. In the context of FX trading, API often refers to an interface that enables software used by counterparties to connect in order to obtain real-time pricing data or place trades.

Automated trading system:

A computer program that defines decision rules to generate, submit, monitor and revise orders continuously.

Child order:

Each of the slots of small FX transactions in which parent orders can be sliced in the execution of a transaction.

Circuit breaker:

A type of trading curb where trading is halted for some period of time if the market for an asset moves more than a predefined trigger.


Central limit order book, a trading protocol in which outstanding offers to buy or sell are stored in a queue and are filled in a priority sequence, usually by price and time of entry. Orders to buy at prices higher than the best selling price and orders to sell at prices lower than the best buying price are executed. CLOBs are common for highly standardised securities and markets in which trade sizes can be small.

Consolidated tape:

An electronic system which combines traded volume and price data from various trading venues into a continuous live feed to show a more representative picture of the market.

Dark pool:

A private venue that provides for anonymous trading and that does not display the order book to market participants.


Electronic communication network, a system that electronically matches buy and sell orders.

Execution algorithm:

An automated trading program designed to buy or sell a predefined amount according to a set of parameters and instructions with the objective of filling the order.

Fat finger:

Describes a type of trading error caused by mistyping on a computer keyboard. The term has come to capture more generally any trading error caused by simple human error.

Fill ratio:

The traded amount as a share of the submitted amount.

Flash event:

Refers to a rapid, deep and volatile move in an asset price usually followed by a quick recovery.


Standardised, exchange-traded derivative contracts for a pre-agreed quantity and quality of a specified asset for a price agreed today, with delivery and payment occurring at a specified date in the future (delivery date).

Iceberg order:

An order where only a fraction of the entire order may be visible to other market participants. As the disclosed portion is filled, the subsequent portions are sent to the market until the order is filled.

Implementation shortfall:

The difference between the average price the strategy achieves when completely filling an order compared with a benchmark rate.


A process whereby dealers offset risk (open positions) arising from client transactions against risk (open positions) arising from transactions with other clients.

Kill switch:

A functionality in trading software designed to instantly disable all trading activity for a particular participant or group of participants, cancelling all working orders and preventing the ability to enter new orders. Some kill switches may also allow risk-reducing orders while preventing risk-increasing orders.

Last look:

A practice whereby a market participant receiving a trade request has a final opportunity to accept or reject the request against its quoted price.

Latent liquidity:

Refers to actual liquidity on a trading venue that may not be made visible to market participants by actors who opt to hide the actual size of their trading interest, creating a perception of lower liquidity than that actually available.

Limit order: An order to buy a specified quantity up to a maximum price, or sell subject to a minimum price.

Limit order:

An order to buy a specified quantity up to a maximum price, or sell subject to a minimum price.


The degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value.

Liquidity pool:

Intersections of orders, being the ranges with which it is possible find a lot of long, short, takeprofit and stop-loss orders.

Lit venue:

A trading venue where the order book is visible to all participants.

Manual trading:

A method of trading that involves human decision-making and action to submit orders into the market.

Market depth:

Sum of the amount of outstanding orders pending (possibly at different prices) on either side of the order book.

Market impact:

The difference between the price observed just before a transaction and the actual execution rate. Also known as footprint.


A dealer obliged to quote buy and sell prices in return for certain privileges on a trading platform or an exchange.

Market risk:

The risk to a market participant’s position emanating from changes in FX prices or rates.

Matching engine:

The matching engine refers to the allocation algorithm embedded in an exchange’s computers to match marketable buy and sell orders within the central limit order book and convert them into executed trades.


Non-deliverable forward, a forward contract that does not involve an actual exchange of currencies. Instead, it entails a cash settlement of the difference between the actual and a pre-agreed exchange rate in a single payment at maturity.

Order book:

A continuously updated list of bid and ask orders.


Over-the-counter, referring to bilateral transactions not conducted on a formal exchange.


A process of adjusting the configuration of an algorithm to change its behaviour in executing orders.

Parent order:

An order which can be sliced by dividing it into smaller lots (known as child orders) in execution of a transaction. A parent order is typically used in many algorithmic trading strategies to structure a trade. Also referred to as meta-order.

Pegged order:

An order to the bid or ask with, or without, an offset. The display quantity will float with the bid or ask, up to the ultimate limit price of the order.

Post-trade credit control:

Limit set by a broker to manage its financial exposure toits customers through the different types of market activity in which they participate.


Percent-of-volume, referring to targeting a level of participation in markets on the basis of turnover indicators.

Pre-trade risk control:

A controls used to prevent inadvertent market activity due to unauthorised access, system failures and errors. On an exchange, a pretrade risk control can set limits on the size of an order submitted to the exchange’s matching engine.

Price/time priority allocation:

An exchange matching engine algorithm that fills buy and sell orders according to price and time priority, also known as “first-in-firstout” (FIFO). An incoming order’s quantity immediately matches against each resting order at the same price within the central limit order book queue, decrementing each resting order based on its position within the queue. Resting orders at the same price level are given matching priority based on the time they arrive at the exchange, with the oldest order having the highest priority.

Price tolerance limit:

The maximum amount an individual order’s limit price may deviate from a reference price such as the product’s current market price; is typically applied on orders generated from an automated trading system before the order is sent to the exchange.

Primary venue (PV):

A classical exchange for settling trades in a transparent manner. For spot FX, primary venues traditionally include electronic communication networks such as EBS and Refinitiv Spot Matching.

Principal trading firm (PTF):

A firm that invests, hedges or speculates for its own account. This category may include specialised high-frequency trading firms as well as electronic non-bank market-making firms. Sometimes also referred to as a proprietary trading firm.

Resting order:

An order that has been submitted to the exchange but has not yet been executed. Resting orders are placed using a limit price and are said to be passive since they do not trade immediately and will only trade when another participant agrees to trade at their price level.


Request for quote, a query issued by a trading platform member to another member to request price quotations. Systems for sending RFQs vary according to: whether the sign of the order (buy or sell) is revealed; how many participants and what kind of participants may receive an RFQ; and whether the quotes are executable or indicative. A related trading protocol is request for market (RFM). RFM refers to a request for quote where the client does not reveal the sign of the desired trade (buy or sell). An RFM is a request to see a two-sided or “market” quote rather than a onesided quote.


Request for stream, a query in which market-makers provide continuous streams of firm quotes with available size, and the client receiving the quotes can click to trade.

Risk transfer:

A request by the client to trade the full size of a transaction with the liquidity provider, allowing the client to swiftly transfer the market risk of the trade to the liquidity provider.

Smart order routing (SOR):

A type of algorithm aimed at rapidly executing smaller orders by simultaneously routing to numerous liquidity venues.

Top-of-book (TOB):

The best bid and ask prices in a given security. The difference between the highest bid and the lowest ask is the top-of-book bid-ask spread.

Transaction cost analysis (TCA):

A tool that allows end users to monitor the efficiency of their transaction both pre- and post-trade.


Time-weighted average price, a trading benchmark used by traders that gives the average price of a security over a specified time.


A measure of the fluctuation in the market price of a product over time.


Volume-weighted average price, a trading benchmark used by traders that gives the average price a security has traded at throughout a given period weighted by the volume traded.