FX Trading Volume Plunges In Disgust Over HFT Dominance

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.