And so, dear readers, we commence the second 500 of these columns by returning to a theme that has dominated the past 100 – and which remains the biggest single issue facing the foreign exchange industry at this time. I refer of course, ...
It is widely believed that it is inevitable that technology will assume more control of the decision making in markets, but I for one, hope it does not, for I don't believe the outcome would be particularly good. At the moment technology dominates the execution of strategies, but the decision making is still a more balanced process with the human very much involved – which to me is a good, because what we need is a good blend of human and machine if we are to continue to see risk takers.
The January 3 flash event in FX markets continues to fuel the news cycle and in this week’s podcast, Colin Lambert and Galen Stops discuss the real impact of algos – widely cited as a major factor in the event – in markets. For once they agree on a central theme in the debate, including Lambert (very reluctantly) shooting down one of his own arguments with Stops last year on trend following, but as always there’s room for divergent views.
Thursday’s column provided a steady stream of comments and feedback with one question over-riding all others – what can be done to avert more flash events, especially in the Australasian window before the mainland Asia open?
I actually think the question should be, ‘what, if anything, should be done?’ because I remain unconvinced that what happened last week requires a radical rethink of how the FX market operates. This may come as a surprise to long-standing readers who may recall me advocating for the use of central bank volatility bands post-sterling flash crash, but the two events are different.
I know I have floated ideas around this issue before, but do we need to do more about that hour after the New York close than just talk about it? Flash events are starting to occur a little too frequently in FX markets for some peoples’ liking, so what can we do about it? Actually I think we can do quite a lot – or at least it would be a lot if all the noise around data capabilities isn’t just that – noise.