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The Lunatics are Running the Asylum

It has been regularly ventured in
institutional FX circles that any retail trader looking to make money in FX is
crazy – there is an information disadvantage that is not compensated for by the
advanced technology available to these traders. Data has shown in the past that
less than 30% of retail FX traders make money in FX.

According to market sources, the retail
traders are, however, currently having their day in the sun when it comes to
sterling. One dealing source in London tells Profit & Loss that “the majority” of volume in sterling is
retail generated and that institutional volume is “at a standstill”.

With market makers notably reluctant to
price in any size and, remarkably, leverage still available to retail traders,
this has led to a situation where, as one trader puts it, “the retail guys are
running the show”.

The Asian trading session was characterised
by random volatility in sterling with a definite downward bias – Cable fell by
130 points during the session – as well as downward pressure on USD/JPY as
retail traders in Japan sold GBP/JPY in large numbers.

With confusion reigning over when polls
regarding the UK’s EU referendum vote are due out – and what they show – the
lack of real liquidity has led to a situation in which even the smallest
tickets are having an exaggerated impact.

At the time of writing Cable has fallen to
a new low for the day below 1.4125 as the European session gets into full
swing, the London-based trader says a “tough” and “nasty” day is expected in a
market whose dealers appear to have “lost all confidence” in holding even the
smallest position. This is leading to, as one trader told Profit & Loss
earlier, a “one-hit market” whereby a single trade at a level sees the market
move one spread.

Colin_lambert@profit-l;oss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss    

Colin Lambert

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