Meet the Team - Justin Gang Xu, Head of Risk

1. Tell us a bit about yourself, your role and why you like working in the FX space?

I have been working in the foreign exchange market for more than 10 years, covering roles in risk, global macro trading as well as systematic FX research functions. Currently, I am the Head of Risk at MillTechFX, responsible for the establishment and implementation of enterprise risk management framework throughout the firm, ensuring risks are properly identified, assessed and mitigated.

The global foreign exchange market is fascinating because it is the most liquid financial market in the world. Nevertheless, it is also highly opaque because most of the foreign exchange transactions occur in the over-the-counter (OTC) market on a bilateral basis. It is also a fertile area to explore risk management as the currency market is driven by a wide range of macroeconomic variables and currency risk is also considered as one of the key risks faced by corporate treasury according to a recent report compiled by Citi Bank.   

2. What, from your perspective/your role, is the biggest challenge in the FX space right now?

G20 cross border payment working group has identified cost, speed, access, and transparency as the four obstacles associated with cross border payments. I think one of the key challenges in the FX space is to deliver a customised, straight-through FX ecosystem to corporates and institutions, especially SMEs who traditionally relied upon banks or brokers to obtain FX services, suffering from uncompetitive and untransparent FX cost structure. Such an ecosystem would allow the corporates to efficiently access competitive FX rates, obtain bespoke FX hedging solutions and manage the full life-cycle of FX transactions in a quick and efficient way, hence significantly reducing the operational burden for the SMEs, who typically don’t have resources and capacity to manage pre and post trade workflows.

3. If anything was possible, what would you do to make FX execution smarter? 

There is no single execution strategy that fits all FX transaction requirements. In order to make FX execution smarter, it is important to contextualize the FX execution strategy to dynamically take into account a range of execution factors (such as price, volume etc) as well as execution objectives (FX conversion or hedging) when deciding the optimal execution route and the relevant liquidity pools.

Significant progress has been made to incorporate artificial intelligence and machine learning techniques into the design of FX execution strategy, however in certain market conditions, especially during crisis periods when market liquidity tends to evaporate quickly, human intervention and oversight become critical to ensure quick and efficient FX execution. Therefore, smarter FX execution also requires better interaction between technology and human traders to ensure the consistency of execution quality in various market conditions.

4. What is the most important trend in the FX space right now?

I think one of the most important trends in the FX space is to leverage upon technology innovation to deliver bespoke and intelligent FX solutions to customers. The rapid evolution of technology has significantly changed the way foreign exchange services are delivered to the end client. In the past, a client typically called the dealing desk of the bank to execute a FX trade, which was then manually booked into its own internal system.  Given the rapid development of technology, especially the adoption of Application Programming Interface (API) and FX aggregators, client can obtain a straight-through process for the trade execution, settlement, financing and custody whilst significantly reducing manual steps and the operational burden. In addition, Robo FX hedging that incorporates artificial intelligence and machine learning techniques into the designing of hedging strategies can not only consider client specific hedging requirements, but also take into account different sources of information and be more adaptive to the prevalent market conditions, therefore delivering a better hedging outcome for clients.