EUR/AUD: How to butcher a big order in the FX market
One week ago EUR/AUD was trading quietly on the 1.33 handle. Now its touching 1.42. What happened will surely be taught in years to come as the exact way not to execute a large order in the FX market. Instead of calm we had panic, instead of finesse we’ve seen heavy-handedness, and instead of subtlety we’ve seen the dambusters! One-way selling of AUD/USD during the Asian session and then buying of EUR/USD during the European session. Whatever happened to trading an order; selling some then buying part back to keep the market guessing? The stampede caused by the heavy selling has been a huge disservice to whoever the poor customer is.
Unfortunately the art of FX trading in banks is becoming a lost art. There are no traders, no risk takers, no common-sense chief dealers; all have been replaced by execution platforms and algorithms.
It’s a myth that there is deep liquidity in the FX market, in fact despite it’s growing size, the dearth of market makers and proprietary risk takers on a daily basis means that its impossible to clear any decent amount of business in a timely fashion. One big hedge fund recently told me that if he needs to clear EUR300 at the height of a normal European/US session, he needs to do so in twos and threes. No one will take on any of his risk.
Regulators should be careful what they wish for.