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. (JPM) 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), but also 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.
