Up until relatively recently, very few retail FX users were making use of high frequency trading techniques. The main reason for this was the fact that the speed of access to pricing engines and the rate of execution on retail FX platforms was too slow to take full advantage of the majority of trading algorithms. However, this situation is beginning to change as more retail FX customers take an interest in high frequency trading techniques. As a consequence, platform providers are making a concerted effort to improve matters in order to make their platforms more attractive to high frequency traders.
There are two main reasons for this. One is that regulators are pushing for STP (Straight Through Processing) executions to be the default execution mode on retail platforms, and this necessitates a two-way transfer of information between the broker and the execution platforms. Any undue delays or slippage issues could cause brokers to fall foul of the regulations – which could be costly to the brokerages.
The other reason is that most high frequency trading algorithms are based on short term trading strategies, which hinge on small movements in currency pairs. In order for these strategies to be effective, a fast execution time is required. In order to provide this, brokers and execution platforms have had to invest heavily in high-speed data links. However, this type of investment can pay off, as short-term strategy clients can be of high value to brokerage firms.