Hearsay from the interbank market tells us that proprietary trading has now virtually disappeared from dealing rooms and in fact banks are also questioning their market-making activities in the face of regulations and investigations. This has made a big hole in overall turnover in the market.
I’ve spoken with 4 retail brokers and they are reporting declines (from the highs) in trading turnover of between 25/70% over the last 6 months. The retail trader continues to take his/her lead from the interbank market and although it’s come a long way in the last 20 years, the retail FX trading market is still fighting to find it’s own unique identity.
The professional trading market is readjusting to these structural changes and one of the world’s largest hedge funds told me last week that their turnover is 60% lower than this time last year. Many have adjusted their goals and trading strategies to the changed environment and are day-trading or trying to push the now-smaller market around for a quick 50 pips. The Pro trader will quickly adapt to whatever is happening in the market. That said, most FX-specific hedge funds seem to be struggling this year with only a few reporting any type of small profit.
In short, we can expect the current conditions to continue for another few months. July and August are typical holiday months and have traditionally been quiet periods. If recent events in both the political and economic spheres cannot get the market moving, then it’s going to have to be a very large black swan to shake things up again.