FX Trading Volume Plunges In Disgust Over HFT Dominance

Tyler Durden's picture

A week ago we explained how, after completely destroying the equity and commodity space, and make serious inroads into bond trading (and soon very likely into OTC interest rate derivatives, where a flash crash will literally be the end), HFT algos had taken over FX trading to the point where they have now been caught manipulating the market using Reuters' FX trading platform. Now we get prima facie evidence of just how this destruction is manifesting itself. According to Reuters, which has compiled the data on its own FX dealing platforms, "daily spot foreign exchange trading volumes... fell by 23 percent in October from a year earlier. The average daily volume traded in October was $120 billion, down from $155 billion in October 2011 and a decrease from the $133 billion recorded in September."

Reuters was not alone: "Trading volumes at EBS, the other main interbank dealing platform owned by interdealer broker ICAP Plc, also declined in October."

As to the reasons: they should be quite obvious. On one hand, we have the old tried and true vacuum tubes, and Reuters reports that the decline was to a major extent driven by "frustration with high-speed computer algorithms operating on the major dealing platforms." In other words, as more and more FX trading is merely robots competing with other robots to outarb each other on press releases, in the process completely crushing retail traders, and generating outsized kneejerk reactions to the tiniest of signals, any humans left are quietly shutting down their terminals and turning off the lights.

There is, however, one more guilty party.

Market players said low volatility in the currency markets was weighing on trading volumes.

And whom do we have to thank for the complete collapse in vol? Why Uncle Benny and his merry band of global inkjets, who, as most know by now, do everything in their power, up to and including selling VIX calls to generate reflexive, massively levered signals that "all is well", to eliminate all indication that something may be broken. Sadly, when everything is broken, the Fed's intervention no longer matters at all.

And after equity, credit, and commodity traders have figured it out, it is about time that the carbon-based FX trading element also boycotts the manipulated cesspool formerly known as the market, until Bernanke & Co. finally go away.

If that means an epic market crash, so be it: at least real price discovery will finally return and real trading can resume.

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Cognitive Dissonance's picture

Will Skynet become sentient, then promptly self destruct in an orgy of electrons?

And will anyone care?

overbet's picture

THe whole market is racyst. Down down down after the black man gets in

NotApplicable's picture

Other than zero, I can't imagine what real price discovery in a fiat, forex market could possibly even be.

Jim in MN's picture

Predominantly just probabilities of relative government bond interest rates (risk-adjusted yield differentials), so in a ZIRP-Japanified world there's no fucking point anyway.  Algos just make it insulting to boot.

Orly's picture

There's my point, actually.  The yield on the 10-year UST was up four point six basis points (!), the CCI H4 was rising through the center line and the Australian dollar was ramping all day; all of which indicated that the USDJPY should have been on a tear.  Yet the USDJPY pair sat there like a stupid dog until just before time for the 30-year UST auction, when it plunged...almost as if someone (or everyone...) just knew that the auction was coming in at a higher price, lower yield and then they just stepped on it; crushed it.  And, as the article states, it wasn't like the auction was horrible.  It was off 0.08 from expectations, yet somehow, this became the end of the world for the trade.

Stopped out, I just looked at it, going dude, this makes no sense at all.  So, I didn't trade.  Watching and not trading is not putting money into the hands of the 4X banks.  Makes you just want to get out and leave it alone altgether.


falak pema's picture

wise analysis of a casino player who knows the zero is the lynch pin to all spinning wheels. 4X is worse...in terms of odds, when the oligarchs hire 007; against the small guy. 00....thats not 1/36, its twice as bad. And 7 is like mayan calendar; jees that gives me the creeps. 

Orly's picture

Maybe it gives you the creeps, falak, but it makes me angry.


Perpetual Burn's picture

"USDJPY should have been on a tear"

I don't know were you have been, but U/j has been out of sync for a long time.

Smiddywesson's picture

"Stopped out, I just looked at it, going dude, this makes no sense at all." 

That was a joke, right?  It's not a market, not always, and knowing there are traders out there who believe it should act rationally is one of its snares.


Ruffcut's picture

During an election week and months, everyone is cautious.

Retail traders are small and don't mean a whole lot in FX or any other futs. 

Low volume leads to low vix so you steal options traders premiums and alot of other derivative trades which is high stakes gambling in an insurance realm. 

"create a market with a little chaos, slow it donun and  collect, then reset."

Standard bidness operando.

Cognitive Dissonance's picture

So Skynet will become sentient, then promptly self destruct in an orgy of electrons.

Thanks. :)

<Shields up Mr. Spock.>

Implicit simplicit's picture

if those electrons come from atoms being jostled during the orgy,it will be positively catastrophic when the system melts down.

Cojones's picture

I decided to quit trading FX after QE 1, nothing to do with low volume. The moment decoupling kicked in, a lot of people were forced to quit because of irrational magin calls.

Radical Marijuana's picture

It is no longer so easy to laugh at the facts that drones and robotic soldiers are being developed so fast, and being produced in robotic factories, and that there are advanced plans to deploy them inside the USA. Those REALITIES are on exponential growth curves! Which means it takes quite the macabre sense of humour to find that situation to merely be amusingly far fetched science fiction anymore.

I wonder about "science fiction" scenarios where the computers that were developed to deal with wars using mass destruction weapons (where the time between threats, and response to those threats, was too short to allow any human beings to think about that, before it was already necessary to act on it) were invoked inside of real situations that nobody expected or prepared for. Their runaway automated ALGO trajectories have left humans out of that loop.

We may be seeing something similar emerging in those programs whereby computer driven market trading was driven beyond anything we can imagine, outside of what used to be wild "science fiction." Will the computers engaged in preparing for war be communicating with those which are dominating the market place business trades?  To put it another way, who will Skynet use as its accountant? One of the hyper-bizarre developments of the postmodernizing world is that it appears that the organized crime gangs have been taken over by their accountants! Will it end up that the military computers, running automated wars, will be directed by the financial computers?

Both developments of astonishing advances in computers utilized in militaristic contexts, as well as in various business contexts, are going beyond limited human imagination. It is already the case that the majority of trading is being automatically done by computers running their programs. It is probable that military computers are secretly being developed which might be able to take over when some conflicts force them to.

Electronic frauds, backed by atomic weapons, have utterly extraordinary, unpredictable, novelties which are currently emerging. As always, we rush towards both the greatest creativities, and the greatest destructions, that have EVER happened ...

The phrase, “The only way to win is not to play the game.” comes from a movie called War Games. The specific scene was one in which a large military computer has been asked to find the answer to a question like, “How can we win a nuclear war?” On the monitor of this computer the audience could watch on a map of the world a missile being launched from Russia and traveling toward North America. Then, a second missile would be launched from United States to intercept the first. Eventually one missile would get through the defensive intercepting missiles and a nuclear bomb would explode over a city in one country. Soon many bombs were exploding over all areas of the map as the whole world was destroyed. Scenario after scenario was tried, all ending with the same result; the whole world destroyed. Eventually after trying what seemed like many thousand scenarios the monitor became blank. After a long silent pause the computer said, “The only way to win is not to play the game.” ... The human beings of this world are losing the game, and we need to changes the rules that now benefit the banks.

This has been demonstrated using a large dymaxion map of the world, the size of a basketball court, and atomic bombs represented by small disks of plastic, like tiddly winks. There is such a large basket of thousands of those bombs, that pretty well the entire map of the world could be covered by them! Somehow, the utter insanity of war with weapons of mass destruction is being advanced as nevertheless a real agenda, by the systems that depend on keeping their financial frauds going, using the credible threats of weapons. Therefore, we have ended up with quadrillions of notional dollars made out of nothing, backed up with weapons of mass destruction that could kill trillions of people, and that whole process is more and more being monitored and directed by supercomputers!

However, WHAT was the basis of all of that???

Military ethics is fundamentally based on the idea that "we should kill them before they can try to kill us" ...

Military ethics, plus modernizing science, equals death for everyone unless we all change in radical and revolutionary ways. Military ethics created the debt engines, that are driving our political economy to turn all natural resources into garbage and pollution, as fast as we can. More and more money is made out of nothing, and the game is to accumulate that nothing, in the accounting ledgers. The computerized accountants, who are directing that process, have the growing real potential to have their decisions enforced by computer/machine police!

We are all enslaved inside of an absurd and insane social system that is rushing to AUTOMATE ITSELF.  Robot soldiers, made in robotic factories, directed by computers, protecting a monetary system controlled by automated traders, all on the basis of numbers which were elaborated from fundamental FRAUDS!

Inhumanity has become astronomically amplified and automated! All of those systems appear to be in a Bizarro Mirror World FAILSAFE MODE, in the sense that they are locked into their inherent spirals towards MAD self-destruction. The pursuit of power by the human elites has driven systems which no human beings are able to understand, nor stop from running away with their own GI/GO "logical" developments, based on a fundamentally fraudulent accounting system, whereby the "money" is made out of nothing, and accumulating more of that nothing has been automated to proceed as fast as possible!

not fat not stupid's picture

European FTTs will also take a huge bite when it goes "live".

Quinvarius's picture

When people leave a ballgame early, it is because the game is about over, and the ending outcome assured.  Fiat paper is dying no matter whose you own.  It is all the same stuff as long as the CBs are cooperating.

Village Smithy's picture

"quietly shutting down their terminals and turning off the lights." Yes, I'm going to miss this place.

Smiddywesson's picture

Not to mention sweeping up all the keys from the smashed keyboards.

Orly's picture

Pretty much sums it up.  Take the movement in the USDJPY today.  It was just bizarre and counter-intuitive to the extreme.

I liked trading when things made some semblance of sense but now, we don't know whether it is being manipulated by money barons or by robots or goal-seeked by central banks in cahoots to some talking points.  I am prone to suggest the latter, however, using tools of the former.

I am about ready to hang it up myself and go back to selling fish and chips.


Jim in MN's picture

Let me know, love them things.  I once had a giant party just as an excuse to prepare huge amounts of fish and chips.

Orly's picture

The secret to great chips is to fry them twice.  Once at a low-high temp, drain and allow to cool.  This puts a "skin" on the potato.  Then, fry them hot and it fries the "skin" up so brown and delicious...

And don't be stingy with the malt vinegar!


falak pema's picture

the belgian way; two dips.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

I'll have a large portion of cod n chips with some mushy peas, please. Otherwise it's adapt or die.

StychoKiller's picture

French fries and potato chips have to be fried twice as well, with a cooling interval in-between.

malikai's picture

Actually the yen crosses made much better sense than many of the other crosses..


Orly's picture

As far as being a "risk" play, they were all identical.  But with the yield on the ten-year so elevated, money should have been moving from the yen and into the USD.  Not so much from the AUD (ramping to the moon...until it doesn't...) and certainly not from the Euro.

Either way, the character of this "market" is so out-of-whack and so frustrating, it just makes no sense any more.

Sorry.  I'm in a bad mood.


Zero Govt's picture

"..any humans left are quietly shutting down their terminals and turning off the lights."

last man out, send the algos a virus

nicolae's picture

This is why I carried no wallet.

Hayabusa's picture

any humans who try to compete with Skynet/HFT will be terminated... their capital in particular

LawsofPhysics's picture

A once functioning market for price discover and exchange is now being recognized for the casino that it is at an exponentially faster rate.  I wonder when the institutional investors will go home?

NotApplicable's picture

The day their paychecks stop, as it's not like they've got any skin in the game.

Nobody For President's picture

Institutional investors? You mean the ones that own the HFT computers?

Kaiser Sousa's picture

yet another leg pulled from underneath the 3 card Molly ponzi table...

let it all fall....

I love you Physical Silver........

Jim in MN's picture

It's enough to make you puke up your LeBigMac.

falak pema's picture

for those who believe in the market it belches back : Say Ave Caesar and die! 

oldman's picture

The FX trade is in gold now as it has been all of this year

What's not to like about this? It puts FX where it should be----all relative to gold

What could be more real than using gold as the proxy for trading shit?

All you have to do is own physical and sit back and enjoy winning in all currencies at the same time           really a good deal for this oldman           om

Conax's picture

b-but I thought we needed them to supply liquidity and make the market for us? 

You mean CNBS lied to me?

Zero Govt's picture

technically speaking CNBC are a clearing house for industry propaganda, sorry news, so 'technically' they're not lying, they're just shovelling the shit our way

venturen's picture

It is all becoming clearer now; Bernanke is "The TERMINATOR" and he is from SKYNET! We are seeing the takeover by the MACHINES!

BERNANKE was heard to say after the QE3 News Conference!   "I'LL BE BACK"

Implicit simplicit's picture

The new cereal killer algerios. You don't eat them, they eat your stops until your too broke to even afford to buy cereal.

combatsnoopy's picture

OMG America!  WTF? Obama?  I know there was nobody really running against him but his white shadow.  

combatsnoopy's picture

Strong USD attracts investments says the carry trade incentive.  The dollar just dropped with mega purchases of Gold by Asia.

We are looking forward to a climate of Volcker Rule, Sarbanes Oxley which already killed IPOs, the pointless Dodd and Frank act, no repeal of deregulation AND tax hikes.  

So now we have absolutely NO incentive to play the markets and everything to lose!  Woohoo!  This is awesome, it's going to make unicorns fart rainbows or something.   

That's ALL before the carbon credit collateralized with Hoboken flood insurance premiums flood the market with it's grand appearance courtesy of Obama's fantastic cap and trade agenda!  Well after the tokers in Colorado burn their own hole in the ozone. 

Not only that, the US has NO  international investments.  Remember, we are in a GLOBAL economy.   The global markets do not end with the rich in the US.  Okay somewhat.  


So the algos are left for cannibalism of other algos.  The players, i mean "programmers" know when to fold them.  

NEOSERF's picture

Is there a way for Nanex to do a chart of human trades (retail split from institutional if there are any of those) vs. algo trades over the last 5 years or so..would be fascinating

Joebloinvestor's picture

Make some popcorn and watch the "Forbin Project".


youngman's picture

I agree the HFT´s have destroyed the markets but TPTB will not shut them down..because they are them....someday they will have a huge crash....and everyone will leave the casino...that is why..yes you can play the daily paper...but if you have hard gold.....they can not play you...and gold is the final meltdown....

Racer's picture

Humans can't compete with tubes that cancel millions of trades to create false impressions and only actually trade a tiny fraction of them.. If the law enforcers don't enforce the law you stay out of town

Strider52's picture

I don't see why anyone would play the equities or FX or Options, etc any more. Just buy physical gold and especially silver, and shut up. I know it's boring just watching the price go up more or less all the time, but it's a guaranteed winner.

Perpetual Burn's picture


konputa's picture

I scalped 266 pips this week and I'm trading manually. There is still money out there.