Transaction Cost Analysis (TCA)
Transaction cost analysis explained:
- What is a transaction cost analysis (TCA)?
- What are the benefits of conducting a TCA?
- How does a post-trade TCA work?
- How does a TCA differ in FX compared to equity markets?
- How can I get TCA for my business?
What is a transaction cost analysis (TCA)?
A Transaction cost analysis (TCA) is used by institutional investors and investment managers to analyse trade data to evaluate whether they were executed at fair and competitive prices.
TCA usually refers to post-trade analysis but may also be carried out on a pre-trade basis to select optimal execution strategies to execute a specific transaction or set of transactions.
What are the benefits of conducting a TCA?
- Enables businesses to understand how much they are being charged for the execution of their FX trades against particular transaction benchmarks.
- An independent TCA will compare your executed price against the actual mid-market rate [MID] used by TCA providers.
- Serves as an ongoing audit of FX practices to demonstrate good governance.
- A TCA does more than simply safeguard transparency. It allows for ongoing comparison of the quality of execution against the wider market and demonstrates Best Execution.
How does a post-trade TCA work?
For post-trade TCA, the starting point is a set of accurate data about the transactions to be analysed including accurate transaction time , which is known as the ‘time stamp’.
This data can then be compared to benchmark trade prices offered by TCA providers to calculate the ‘slippage’, which is the difference between the actual trade price and the benchmark price.
How does a TCA differ in FX compared to equity markets?
TCA is more complex in FX than in equity markets as there are less transparent and complete data sets about all the transaction volumes and prices trade given the main FX market liquidity are concentrated in OTC markets
In addition, fair execution prices will vary considerably depending on the size of a transaction and how fast it needs to be executed. As a result, practitioners may use a variety of benchmarks to get a complete picture of the quality of execution.
How can I get TCA for my business?
At MillTechFX we offer free independent Transaction Cost Analysis (TCA) offered via TCA provider BestX.
If you would like to discover how much you could have saved on your previous transactions, request your free report here.
Related terms:
What is MillTechFX?
We provide access to a transparent marketplace for comparative FX execution from up to 15+ counterparty banks, while harnessing a unique and significant pricing efficiency for our clients and reducing their operational burden. In addition, MillTechFX provides clients with full transparency of execution via independent TCA reporting.
