Jorge Sanchez
Volatility is an ever-present force in global currency markets, challenging corporate treasury teams to balance liquidity, funding, and risk with ever-greater sophistication. To successfully chart these unpredictable waters, Transaction Cost Analysis has emerged as an indispensable navigation tool, enabling organisations to not just understand, but proactively manage the costs and complexities of their foreign exchange (FX) operations.
- Enhanced Transparency and Control: Transaction Cost Analysis (TCA) offers a detailed breakdown of costs—from bid-offer spreads to execution timing—enabling treasurers to navigate volatile markets with clarity and confidence.
- Stronger, Data-Driven Bank Relationships: TCA empowers treasurers to objectively evaluate bank performance, fostering trust and fair revenue allocation through transparent insights into credit support and execution quality.
- Risk Mitigation and Strategic Execution: By detecting anomalies and inefficiencies, TCA helps treasury teams uphold compliance, deter fraud, and refine execution strategies to reduce slippage and maximise FX value.
The significance of TCA in volatile currency markets
As fluctuations in currency rates become more pronounced, corporate treasury teams face the dual mandate of controlling risk and ensuring operational efficiency. TCA empowers treasurers by providing deep insights into the true costs associated with each FX transaction—across currency pairs, products, timing, and execution strategies. Far from being a purely retrospective auditing tool, TCA also functions as a real-time compass, guiding treasurers toward informed, risk-aware decisions.
Breaking down the bank’s approach to quoting
Banks often respond to volatility by adjusting spreads, skew pricing, and use timing advantages. TCA helps Corporates demystify these behaviours:
- Spread Monitoring: TCA quantifies the effects of widening spreads during periods of market turbulence.
- Skew Analysis: It detects when banks systematically adjust quotes to their advantage as volatility increases.
- Information Timing: TCA examines the impact of delays between Request For Quote (RFQ) and execution, exposing potential cost increases due to market movements as well as helps to weigh the trade-off between acting quickly to lock in prices versus waiting for potentially better terms.
Such transparency empowers treasurers to negotiate more effectively and safeguard their organisations from hidden costs.
Leveraging TCA data for proactive FX Management
Electronic trading platforms now produce comprehensive datasets that TCA platforms use even in fast-moving markets. By benchmarking trades against independent mid-market rates, treasurers can assess performance both in real time and retrospectively thereby allowing them to adapt as volatility strikes. Automated TCA systems, like Tradefeedr in Workspace, calculate costs instantaneously and present actionable analytics, supporting evidence-based decisions and enhancing communication with banking partners.
Users will be able to find insights for a variety of key metrics like Tradefeedr Proprietary Liquidity Provider (LP) score, tracking which counterparties rank best and offer competitive rates during market swings, Modelled Risk Transfer Cost for a given trade, both in general and specific to the client terms, Volume and Win Performance Score, to analyse how revenue is distributed amongst banks, ensuring it aligns with both relationship value and execution quality in varying conditions as well as the evolution in time of those and many others. All these enable a constructive discussion between Corporates and their counterparty banks on the back of this data as it crystalises in measurable views the effective reduction of costs and better access to liquidity.
Strategic Applications and Navigating the FX Markets with TCA
Imagine during a month-end hedging day or dividend extraction exercise, the corporate treasurer has to face a surge in FX market volatility. By leveraging TCA, they can quickly determine which banking partners are still quoting tight spreads and which are passing higher costs onto clients. They can recalibrate execution tactics—splitting trades, adjusting timing, increasing or reducing competitive quoting to avoid information leakage or even favour the use of execution algos versus an RFQ panel—to minimise cost and risk, all backed by real-time data.
A common misstep among corporates is defaulting to “RFQ-to-all” as a one-size-fits-all solution. In practice, this can lead to information leakage and unintended market impact, particularly if this misstep remains structurally in place and the markets can anticipate the flows. Some corporates avoid algorithmic execution simply due to unfamiliarity, yet different scenarios require tailored approaches. As a golfer selects the right club for each shot, treasurers should choose the most suitable execution strategy for each circumstance. This is where the value of pre-trade TCA shines as it acts as the compass, guiding users through the execution maze, helping answer critical questions such as “RFQ or Algo?” and, if so, “Which panel of banks to RFQ, or which algo to select?” Ultimately, pre-trade TCA is the holy grail for optimising FX execution before trades even take place.
Beyond tracking FX costs, TCA’s transparency fosters open dialogue with banks, incentivising best execution and collaborative problem-solving, especially when volatility upends the status quo, maintaining and strengthening partnerships with their panel banks. For treasury teams, TCA supports continuous improvements, giving the data and reports needed to refine execution strategies and adopt new tools like algorithmic trading. This reduces manual intervention, improves operational resilience and frees treasury professionals to focus on strategic policymaking, such as whether to switch to Dynamic Risk Management for their broader hedging needs during periods of volatility.
TCA as the Corporate Treasury’s Volatility Navigator
In a financial landscape marked by uncertainty, Transaction Cost Analysis stands out as the essential instrument for guiding FX management. By illuminating the true costs of trading, strengthening counterparty relationships, and supporting agile, data-driven strategies, TCA capabilities work to ensure clarity, control, and confidence in every trade.
Read more about
Legal Disclaimer
Republication or redistribution of LSE Group content is prohibited without our prior written consent.
The content of this publication is for informational purposes only and has no legal effect, does not form part of any contract, does not, and does not seek to constitute advice of any nature and no reliance should be placed upon statements contained herein. Whilst reasonable efforts have been taken to ensure that the contents of this publication are accurate and reliable, LSE Group does not guarantee that this document is free from errors or omissions; therefore, you may not rely upon the content of this document under any circumstances and you should seek your own independent legal, investment, tax and other advice. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon.
Copyright © 2025 London Stock Exchange Group. All rights reserved.
The content of this publication is provided by London Stock Exchange Group plc, its applicable group undertakings and/or its affiliates or licensors (the “LSE Group” or “We”) exclusively.
Neither We nor our affiliates guarantee the accuracy of or endorse the views or opinions given by any third party content provider, advertiser, sponsor or other user. We may link to, reference, or promote websites, applications and/or services from third parties. You agree that We are not responsible for, and do not control such non-LSE Group websites, applications or services.
The content of this publication is for informational purposes only. All information and data contained in this publication is obtained by LSE Group from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data are provided "as is" without warranty of any kind. You understand and agree that this publication does not, and does not seek to, constitute advice of any nature. You may not rely upon the content of this document under any circumstances and should seek your own independent legal, tax or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the publication and its content is at your sole risk.
To the fullest extent permitted by applicable law, LSE Group, expressly disclaims any representation or warranties, express or implied, including, without limitation, any representations or warranties of performance, merchantability, fitness for a particular purpose, accuracy, completeness, reliability and non-infringement. LSE Group, its subsidiaries, its affiliates and their respective shareholders, directors, officers employees, agents, advertisers, content providers and licensors (collectively referred to as the “LSE Group Parties”) disclaim all responsibility for any loss, liability or damage of any kind resulting from or related to access, use or the unavailability of the publication (or any part of it); and none of the LSE Group Parties will be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, howsoever arising, even if any member of the LSE Group Parties are advised in advance of the possibility of such damages or could have foreseen any such damages arising or resulting from the use of, or inability to use, the information contained in the publication. For the avoidance of doubt, the LSE Group Parties shall have no liability for any losses, claims, demands, actions, proceedings, damages, costs or expenses arising out of, or in any way connected with, the information contained in this document.
LSE Group is the owner of various intellectual property rights ("IPR”), including but not limited to, numerous trademarks that are used to identify, advertise, and promote LSE Group products, services and activities. Nothing contained herein should be construed as granting any licence or right to use any of the trademarks or any other LSE Group IPR for any purpose whatsoever without the written permission or applicable licence terms.
