FOREX - Lowets vol in years

I wonder if there's anyone that can point out why we have the lowest volatility intraday in about 5 years on all the major pairs?


Thank you

 

leverage

 

leverage to the retail sector or the institutions?

if this is the case, there could not be a fair way out of this, would it? Unless, focus was switched heaviliy to currencies... say like in the event of a major stockmarket crash.... or?

 

1. Lowest spreads ever. You can't have it both ways. On the BARX platform you now get a .7 spread on eurusd without RFQ on up to $200 mio . This has opened up all sorts of trading possibilities that never existed before that are competing away at traditional fx settups.
2) Market makers want you trading more frequently going for smaller pip amounts (you think its only because they earn more spread income?). This means the market can react more quickly when a major order hits, because the money that moves the market is more short term oriented than before. When some huge ice-berg order hits the market (like last september when the Russians were buying at 1.2700) and then had the price go against them to 1.2500, you can bet the market makers and company pushed for those stops.
3) Practically zero market inefficiencies. Gone are the days of 1.9 trillion/day fx volume - CME (Marketspace) CEO on Bloomberg recenly said its now $3 trillion a day and rising to $5 trillion by 2010. All this cash competing against each other is driving down margins. Imagine having 2 7/elevens in the neighbourhood, then 3, soon 5, prices and thus margins for the shopowners goes down - but sales for the corporations that stock there shelves goes up. End of the day, ever higher amounts of cash is spinning around the world faster and faster.
4) A simple $1500 computer with 4 monitors and a kick ass data feed is all it takes to level the playing field with most of the big players. Ok, so at this level you don't get access to the EBS DOM, but so many other things are available that were not up until very recently for the little guy. This was unheard of even 3 years ago. Again, more market ineficiencies being traded away. Admitedly retail is still a tiny percentage of total volume - but it is growing fast (especially in Asia) and I read that in Japan it makes up like a quarter of daily volume.
5) If it keeps going at this rate then the ultimate I guess is to have a .1 pip spread on euro/amero with an average daily range of like 20 pips with everyone fighting it out on there yard per click platforms for 10 pip scalps! (take a look at any eurosterling chart at present to get a picture of what I mean).

 

But still, strategies work.

And what's the strangest thing is that (well, it not strange, it's rather annoying) when volatility is low, strategies tend to work in higher timeframes than usual.

For instance, i use the 10 min to get in/out while looking at the conditions on the 60 min timeframe. It all works good when there about 80-90 pips/day as a range. But now, when we have a 65 pips on the Euro as the 22 daily ATR shows us, below it's quarterly average, i have to switch to execution on the 1hr chart and look at the 4 hour. It's all nice, but the bad thing is that i can't work on a regular daily schedule. Now i have to watch the markets at night, in the morning, afternoon, evening and so on.

I think that if this ends up how you described it, the only strategies we can implement are those related to position trading....

 

No stay away, that's my turf only!

You can't complain at all about the swing setups on the larger timeframes. Since March 1st, 700-800 pip rallies on Aussie and kiwi. USD/CAD has fallen in nearly linear fashion some 1200 pips in '07. Tremendous carry swings by all the yen crosses (AUD/JPY my favorite). So many handout trades so far in '07 on the daily charts, is it always this good?

 

exactly. the higher you go in timeframe the better the swing setups become. I am not complaining about my regular short term swingers, but the problem with them is that more often than not, they show lack of conviction and i always have to quit a position because of see-sawing action making winners rather small...

 

There was a comment on euromoney that a factor contributing to the low vol is the growing volume of algo-trading systems in FX, many of which are based on mean reversion approaches.

 

From Euromoney's Weekly Fix.

“I think what surprises many people in the market is just how prepared Asian corporates are to sell vol, sometimes as part of their hedging strategies and as a means of gaining some yield,” he says. “People continue to look to pick the bottom. But a real market paradox has developed where corporates keep selling vega and funds keep trying to buy it. It wasn’t meant to be like that – when options first appeared, we all thought they’d be used pretty much as insurance policies, but clearly that’s no longer the case. Our business model in emerging markets FX options is largely built on the premise that we buy vega from corporates in onshore markets and sell to other financial institutions offshore.”