Tuesday June 30, 2009 - 17:20:41 GMT
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Forex Blog - "The Dumbing Down Of The Forex Market"
Let me start by saying Iâ€™m not a newbie to Forex Trading - Iâ€™ve been dealing Forex for the best part of 20 years for Trading Banks, Corporations and as a CTA. Over that time Iâ€™ve taken both profits and losses and itâ€™s a fact that no-one is perfect and has perfect knowledge all the time. Forex is a game unto itself and over time only the strong survive.
For the first period of my career the market moved on every piece of economic news, statement, opinion or political decision. The Global Forex Market moved heavily on fundamental pieces of news and at the same time traded very technically. Moves continued, flowed and responded to the flow of information and this bought the brightest minds to trade it because it became so lucrative. As a proprietary trader I had positions through every event 24 hours a day 5 days a week - as if you werenâ„˘t prepared the market left without you.
That type of market has a footprint as you got a real â€śfeelâ€ť for the market as the larger players entered and exited. In fact you could even deal out of market if you called the desk at the right time - precise highs and lows were only broker levels not where banks actually could have dealt.
Today we have very little of this type of trading as most things have moved into the electronic sphere and given the US Governments move to simply place an unlimited amount of capital behind banks they are able to simulate trading models and control price through the US Trading Session with little risk to themselves. They obviously donâ„˘t have to lend the money to the real economy they are happy to take their slice of the global trading market and in turn feed bubbles around the world that we will be dealing with at a later date.
So while volatility remains high the ability of the market to recognize risk factors has decreased, the ability of the market to carve out a wider range has decreased and the markets ability to maintain trend has decreased. Once a move has peaked or bottomed the bot holds the price until we revert back towards the mean. Only after the US trading session has ended can other markets attempt to move the market closer to its true value - if they can attract enough players to push the market - which is not always the case.
Lets look at a real world example. Last Friday markets started to see bad news emerge and statements that were extremely harmful for â€śriskâ€ť so rather than the human market be allowed to adjust price the â€śbotâ€ť market not realizing the importance of the data walked both the Stock Market and EurYen markets higher.. Closing at 137.80. Once Asia opened again on Sunday, the market dropped and in a day and a half the price was 132.00. That was the extent of the news táż¨at uÎ…til the US Funded Ĺ“botsÂť were out of the market that the market áż·as Î…ot allowed to react to.
What has this done to the Classic Market you read about in Trading Books ?
Well simply its adjusted the risk/reward profile of Forex Traders and made the market tighten up and I think taken a lot of the intelligence out of the marketplace. This is a real harm to the long run health of the market because now there is little chance of the Forex market ever being recognized as a legitimate asset class.
Â In Summary, Forex still remains an extremely large market trading large volumes but in looking at the health of the market itâ€™s a patient in need of a hip replacement. It needs to be able to trade more freely and be able to reward countries performing well and punish those not. Letâ€™s not get me started on the eurusd - Iâ€™ll leave that discussion for another day !
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