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Transaction cost analysis

World's largest market

The foreign exchange (FX) market is huge: Recently, the Bank for International Settlements estimated daily global trading to be $4 trillion¹. FX transactions are significant components of millions of daily banking transactions, international commerce deals, and investments. Despite the importance of FX in world business, the costs of currency transactions are not typically measured. The failure to measure these costs and worse, failure to manage them, can diminish capital, erode investment results, and increase financing expense.

Measuring to manage

For investors, regulatory requirements and competition are two reasons to measure and ultimately manage, FX transaction costs. Regulatory incentive in the US is driven by the United States Securities and Exchange Commission's best execution rule. International requirements also exist.

While regulatory requirements might drive the need to measure FX transactions, another compelling reason for investors to measure trade costs is the relentless competitive pressure to improve investment results. Investment managers compete in a business where the difference separating top managers from their peers is measured in basis points (a basis point is 1/100 of a percent).

Thus, the motivation for transaction cost analysis (TCA) in currency trading is simple: it's very difficult to control costs that are not measured.

Our service

We offer a transaction cost analysis service for institutional investors. Our analysis allows clients to assess the competitiveness of their executions by deal size, deal type, currency and bank counterparty. The required trade information is usually available from the investor's custodian. Russell can provide clients a letter to send to the custodian authorizing Russell to access the required information, or Russell could download the data directly from the custodian website with the client's permission.

We also offer

  • Foreign exchange trading to help you minimize trading costs, manage currency risk, and increase portfolio performance.
  • Currency overlay services to help you design an appropriate hedging program. We will manage your FX exposuers according to your preferred strategic hedge ratio.
  • Conscious Currency™ to better manage the currency risk associated with your international assets.

 

¹As of 4/2010 - BIS Quarterly Review - December 2010, The Bank for International Settlements.

Russell Implementation Services, Inc., member of FINRA, SIPC. www.finra.org

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.