The forex industry needs to do a better job of educating prospective traders. The DD/NDD discussions are getting tiresome. The stop hunt discussions are also tiresome.
Pick up the phone, speak to a PERSON on any of the above liquidity providers and the conversation will be
Customer: What is the rate on whatever currency?
Dealer/Sales Person: whatever the f*** I want it to be
There is no law of one price. There is no law of orderly markets (dealers have a code of conduct thing where they agree to do their best to try keep a lid on things and not deliberately cause instability). There is an agency problem because banks want to make money for themselves, but money for them is less money for their clients. Brokers need to get retail 'traders' to understand this.
Add to this that there is very little non-electronic experience within the banks (electronic matching started circa 2000) meaning that there is very little true tradecraft left in the market. I'm 40ish, I started with a bank when I was 19. Yesterday during US ISM PMI I was watching EURUSD futures depth of market and was surprised at what I saw. There was nothing unusual about it other than the manner in which liquidity disappeared around the event and that in itself was not unusual, just that broker DOM feeds show a lot more volume - and I have been watching this stuff for 20 years!
And that is the other thing. There is a difference between volume traded and liquidity. Volume is volume, liquidity is the willingness to buy or sell something and hold it as inventory in the hopes of getting rid of it at a profit 'later'. Its the willingness to look at a large sell order and say 'nah, that guy is wrong, I'll take the other side of the trade'.
Volumes over the past 5 - 10 years have grown. Liquidity has fallen. The result is that price swings are bigger than they used to be.
Even books like Flash Boys are questionable, and Michael Lewis was a trader when I was in high school!
Let me paint a picture. Its 1995. A dealer at a bank can handle 3 phone handsets at one time, he has a reuters terminal which is similar to a really ancient version of Whatsapp and it can only handle 4 conversations at a time. In addition he is wired into 4 or 5 brokers, of which he only likes 2 or 3.
If his USD/JPY price is 120.10/15 in about 10 or 15 seconds he can shout it down his 3 handsets, click into his 3 brokers and then type 10/15 in each of his 4 chats on the dealer.
Standard trade size is $5million. Lets say he has $10 or $15 million to go. It will then take the balance of the minute for the $15million to trade, and for him to go to everyone else and say 'off that' because his price is no longer there.
Its 2015. The same guy can type 10/15 onto 1 machine and have it go out to multiple electronic venues instantaneously, and have the same $15million traded in say 500miliseconds. That is a 120fold acceleration in the speed at which things happen. It also means that if you see 10/15 on screen and take too long to hit the offer (is 500miliseconds really too long?) you will miss the price and get slippage. Can you play silly buggers with HFT? Yes. But at the same time too few prices going to too many venues also creates its own set of problems.
Before complaining about stop hunts stop and think for a moment.
Say the FX market is $1trillion/day. Say 25% of that EUR. That is $250 billion. Now lets say the range on EURUSD is 100pips. Assuming even distribution of volume $2.5billion is traded at each pip of the range. So Mr Retail is some clown with a $50k account with a 10 lot trade and a 50 pip stop. It really doesnt matter where his 10lots/$100k stop loss is, there is another $2.5billion of volume at that price level and if something is going on that makes a person or persons target that price level. Sorry for you - YOU WILL BE STEAMROLLED.
And that is another thing. As I understand it most desks have an intraday limit of about 1 yard/$1 billion. If volume is 2.5yards a pip its a little difficult to run a stop loss and stay within position limits. And even then, it takes stones to get overly aggressive because $250billion per day averages about $3million volume per second. A $500million position is $50k/pip in profit or loss making a 5 pip move more than your salary for the year.
Look, there are times where volume will be a thinner than average and guys will pounce but that will usually be something along the lines of the the guy at Banker's Trust knows the guys at HBOS are short so they push the market just to shaft the HBOS guys (yes, I am using names of banks that no longer exist to avoid legal problems).
I recall a slow morning where 5 or 6 banks colluded to shaft a single dealer because they felt he was 'too arrogant'. And yes, it was funny to hear him panicking and shitting his pants as the market moved against him. The value of a nation's currency (Emerging Market, not G7) moved for no real reason. Some stop losses probably were run but do you think any of us stopped to think about it?
Naaah - we were too busy enjoying our prank.
Now that I think of it. I have watched a situation where two equity futures traders working for the same bank got into a fight because they disliked each other intensely, and Trader A figured out that Trader B had a large position, so Trader A called up all of her mates and encouraged them to join her in a trade against Trader B's position. At one point Trader B was almost in tears cos the loss would have gotten him fired. Dude was begging and pleading and causing a bit of a commotion. I think it only stopped when the head of the desk instructed both of them to settle down.
If you like it, buy it. If you don't sell it.