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The Reason Why Trading Currencies Is Now The Most Difficult Since Lehman
Feel like trading FX has become next to impossible, with massive, gaping bid-ask spreads, strange "tractor beams" at key technical point in major pairs, completely unexpected stop loss runs, and - of course - central banks behind every corner? Don't worry you are not alone. According to Bloomberg, that's precisely the case as "it hasn’t been this difficult to trade currencies since the collapse of Lehman Brothers Holdings Inc. shook markets worldwide."
The difference between the price at which traders are willing to buy and sell major currencies has widened to the most since the 2008 financial crisis, according to data from JPMorgan Chase & Co. Bid-ask spreads have expanded even as the amount of trading climbed amid the most foreign-exchange volatility in over a year.
JPMorgan Chase’s measure of bid-to-ask spreads is about 18 percent, the highest since 2009. The gauge is calculated by dividing the gap between the prices at which traders are willing to buy and sell currencies, by the mid-point between the two.
The problem is that while it is not as expensive to trade as it was after Lehman collapsed, traders now have to contend not only with momentum ignition algos which trade in a very haphazard, utterly irrational way to catch as many traders offside as possible (the exchanges selling the stops data to the highest HFT bidder does not help) , as well as with even more irrational central banks, which one day promise one thing, only to turn around the next day and blow up everyone who believed them.
From Bloomberg: The root of the illiquidity is surprise central-bank policy actions, led by the Swiss National Bank’s decision last month to drop its currency’s peg to the euro. Traders are less willing to make wagers as prices swing, with the franc surging 15 percent versus the shared currency and the Canadian dollar dropping 6.7 percent versus its U.S. counterpart since the start of the year.
“The moves took people off guard,” said Peter Gorra, head of foreign-exchange trading in New York at BNP Paribas SA. “Depth really has changed and the lack of liquidity will remain as the market is broken for the time being.”
Liquidity has declined as the bank’s global option gauge of currency swings climbed to as high as 11.68 percent last month, the most since June 2013.
Another reason why liquidity has collapsed: in the past year a crackdown on FX trading has revealed that the bulk of the institutional market participants engaged in illegal collusion and have been chased out (none have gone to prison of course). It is so bad in fact that as the NYT reported, the "U.S. Is Seeking Felony Pleas by Big Banks in Foreign Currency Inquiry" (yes, funny).
But the biggest reason why after completely manipulated stocks and bonds, it has become almost impossible to trade FX as well is well-known to everyone:
“Central banks around the world are now massively in play,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “And the sovereign-divergence trade is more in the cards than it has ever been, keeping volatility bid. January saw a decline in liquidity, yet there isn’t a crisis or contagion.”
So just wait until there is a crisis or contagion. And as to what happens, when more central banks pull an SNB and lose control, well... it will be best to watch from very far away.
Until then, pray to this man, who also happens to be one of the main reasons why trading FX is now next to impossible.
Position: Head of Foreign Exchange & Gold
The BIS is a really special place to work because it is a link between the markets and the central banks. This means that I can work in the markets, as I was doing before, while taking a central bank perspective. I find it very interesting to talk to the central bankers who call us for advice, information and market liquidity summary, and I love having a foot in both camps.
As we act as market-makers for BIS products in currencies and gold, we maintain relationships with all market counterparties to ensure sufficient liquidity for our customers and appropriate hedging instruments. We are focused on central banks and international institutions, helping them implement foreign exchange interventions, build their reserves, diversify their portfolios or modify their reserve currency allocation. We can also help them to manage their gold reserves. Of course, many of the issues we deal with are highly confidential, so discretion is very important.
Working here has many advantages in terms of lifestyle. While you don't earn the kind of huge bonuses you could in London, you get exposure to some of the most interesting people in the industry. The selection process here is pretty tough, so you automatically have good people around you and can get involved in some challenging debates.
I have to say that I really enjoy Basel too. I was working in Luxembourg before, which was another wonderful small city. In Basel, I can go home and be running alongside the Rhine and watching the sun set in 10 minutes. And, of course, you often encounter your colleagues out and about, which fosters a very friendly working environment. The senior managers here go out of their way to be accessible, so if you see them in the supermarket you can be sure that they'll have a chat with you.
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Then why do it?
I don't trade FX, but an 18% bid/ask spread can't be right. Can anyone tell us what the actual number is?
I'm talking major currencies not the Ven Peso, the Viet Dong, or the Twat.
(the suggested calculation for the spread in the article is just plain nuts)
We spread'd some folks
they call it Counter Party Risk.
No firm wants to be Corzined by another Black Swan like the SNB or Danish moves.
(bitchez)
Yeah, but world trade would grind to a halt. 1.8% would be nuts on cash to cash. You should get a better rate from Guido outside the hotel in the black market.
I don't follow currencies so can't comment on bid/ask, or trades etc... Margins are razor thin, so when shocks happen, they widen the spreads -
I have Wall Street Conterparties for my mortgage hedges, and they quickly ask for cash collateral, WHEN the call threshold is breached. Likewise, they also cough up the cash when the hedges rise in value like they have the past week when Treasuries puked up.
Dear FX traders. Now you know what it has been like to be bitch-slapped while owning/trading PM's for the entireity of the last 3+ years?
Yes, and we get "special sauce" tax treatment as well.
Thank you Traitor-in-Chief.
I pay a max of about 15 pips on the common pairs and as low as 0.3 pips on USD/JPY with FXCM. (Yep the company that blew up from the SNB actions on Jan 15th.)
It is immoral to traffic in Twat.
and your point is;)
Yes, zero hedge needs a quality control person, as this kind of error happens too often these days on this site. Go to the Bloomberg article (one should always go to the ultimate source of info) and you will find the spread is .18%, not 18% (what's an 18000 percent error between friends?).
And perhaps even more disturbing than the error by zero hedge are all the people on this site who comment on such an absurdity without even the slightest reflection aforehand on whether the represented spread is true.
Why do all these european guys have perma-smirks and look like they suck cock?
BDIY - RECORD LOW REACHED
Explain that recovery robots!
Magnificent....lets get some more Dodd-Frank legislation going so we can make it even harder totrade and make a living...The 1% thank you
Harder to trade? TRADE WHAT, be specific!!
Trading useless fucking paper-promises? Who the fuck cares? I see all kinds of trade around me you ignorant fuck.
BLOW UP THE BANKS
What a douche bag. More and more shill every day. Like a rat on meth.
So, you should be trading in something physical of value like comic books rather than paper or stealing from other peoples transactions.....
Market inefficiency or 'Edge' in other words must be robust in the first place, so I call it BS, also a tail about spreads is BS, of course it's true if you are trading with some bucket shop. What I observed is the slippages and liquidity is different, so that holds some truth.
Can I interest you in a new Hilti, Mr. Gilson?
Ben who muthaf*ckas?!?!
Ben-wah muthaf*ckas!!!
Ben who muthaf*ckas?!?!
Ben-wah muthaf*ckas!!!
..because it is the same thing as trading unicorn shit.
It only works as long as people have faith in the FIAT itself...
"I have to say that I really enjoy Basel too. I was working in Luxembourg before, which was another wonderful small city. In Basel, I can go home and be running alongside the Rhine and watching the sun set in 10 minutes. And, of course, you often encounter your colleagues out and about, which fosters a very friendly working environment. The senior managers here go out of their way to be accessible, so if you see them in the supermarket you can be sure that they'll have a chat with you."
Ahhh....the idilliac life of a Bankster.....voice over.,,,,brought to you by the folks at Home Depot......cut to HD commercial...twenty-somethings in backyard with dog and flower pots...voice over begins.."lets get that project done..lets get that nail gun"....
Yea history is full of people who were running along the Rhine. MOFO
i saw with the rise of algo trading that the disruptive trade was to blow up the other algos with non correlated trades and play the disruption which are then disrupted by other disrupter algos. in other words there is a chance the market could disconnect completely from fundamentals correlation to total chaos, battle of the bots style, with daily explosions in any random market for no reason.
Money is stable, currency is volatile.
Money is gold, currency is fiat.
Ponzi giveth .... Herve Fasciani taketh away ! Hope and Foreign Exchange !
I wouldn't be running on the Rhine anytime soon if I were him.. Bankers /Manipulators aren't doing too well these days! Just sayin!!
Are theae guys just salivating at the thought of an EU break-up, and the members reverting back to national currencies?
Maybe because so many are now being fined (never ever arrested!) after the fact.
JP Morgan. I hear they are worth hundreds of trillions by themselves? Goldie Sachs is worth even more. (the CIA said that the value of the planet is worth appx $700 trillion...) IF they're valued so high, why would they need TARP? Why would they need petrodollars for liquidity and QE? Why would they "need" an 18 POINT spread on FX trades?
Trades should be made via algo vending machines with the sophisticated programming of online video game consoles.
Guess we be trading dim sum and wannabe wasabi Wantanabi bonds with zero sum synthetic futures to hedge no collateral.
$5.3 trillion/day is traded on the currency exchanges. For the troubles caused to all of us, margin for the little guys and commissions should be made free to us. The Boomer elected US Gubbermint didn't hedge our OPEC imports with OPEC's basket of currencies when the gas prices started to soar in 2005-2014. They failed, they're worthless. We should be comped for their lack of performance, not robbed in price inelastic yet market manipuated excessively high oil prices to keep the criminal failed banks liquid.
They take TARP and other government handouts for the same reason a dog licks his balls.
Because he can.
Their true skills will be visible when the derivatives crash.....
Only three major countries reverting to the gold exchange standard currency will challenge the entire fiat currency system.
Assuming Russia and Iran will be the first two, under sanctions with less to lose and powerful militaries, and in no specific order, the next ones will be Belarus and all the EEU members, Egypt, Turkey, Syria, Lebanon, Greece, Cyprus, Malaysia and lastly oops Canada - with a newly public central bank (within three months).
Tertiary joiners might be Angola, Nigeria, Yemen, Oman, Brazil, India, Pakistan, Afghanistan and last but my no means least, China and Italy, followed by Portugal and Spain who will default, with all remaining North African countries.
No gold, no problem, China and Russia will loan it to you, on account, at zero percent! The rate will be 1% exchange for bullion by the way.
It's a wonderful world!
"Ras Putin"? is that a Jamaican dude?
DB taught me to stay away from Forex. In 2010 they had a NY operation that sucked up $3k from my account and suddenly stopped answering phone calls.
I'm sure somewhere the DB books don't balance and I fully expect the bank to call one day and tell me they have my money (har har).
From now on I will only deal with recognized criminals when doing cash exchanges. Banks are not trust worthy.
This is a true story. The German bank stole my money. I won't even comment on the strange, middle of the night stops that were hit. I'd rather deal with a biker gang.
You should know better than to use overnight FX stops, it's like playing battleship looking at your buddies side of the board.
…makes no difference when I place my stops. The buggers always seem to know exactly where it is, pop a pip past it to take me out, and then run it the way I wanted it, but without little ole me.
For Pip’s Sake!
Just having the name "Benoit Gilson" makes me want to kill him.
We stop gunned some folks!
He sits in a special place between one thing and another. Ought to change his name to Benoit Balls.
LOL !! Next to impossible!!! Typical ZH crap. Same challenges as ever, nothing changed. Actually now with volatility back it got a little easier than lets say 6 months ago.
Buy PMs on the dip - fizz only - hold, and wait till the current system has crashed and burnt. In the new system, sell part of your fizz for productive assets of your choice and liking.