I can still remember 30 years ago the London interbank market and its intricate dealer network of hundreds of forex houses where scalpers could thrive on a 3 pip spread between one phone on the right ear and the other on the left. Up or down the scalper could cut a spread matching institutional pairs with dexterity and make arbitrage plays all day long. Even on Black wednesday, on the 16th September 1992, when Sterling crashed thru its ERM parity rate 2.95 with the Deutsche Mark, on the day that George Soros made 5 billion dollars in short sterling trades, in it's aftermath and costs of 27 billion Sterling to the Exchequer, I didn't exactly notice Forex firms going belly up, in what was technically one of the worst trading days in history. I still can recall the fury of matching pairs, scalping pips and making spreads short, up and down we were used to riding the waves. But still we were all there, in stark contrast to the deep liquidity crisis of 2008 that forced the hand of the US treasury to temporarily take over the US banking system and guarantee liquidity.
Read - http://en.wikipedia.org/wiki/Black_Wednesday
Today the Forex market is a totally different creature and Im not too sure that it has changed for the right reasons.
The internet has come for all and a multitude of Forex platforms for the small trader has created more liquidity in what was once a wholly institutional market.
But with this free liberality has come a dangerous new factor with the advent of automated trading.
Today the Forex market has a daily value of 5 Trillion dollars and approximately 80% of all trades conducted are now electronic.
The fact that a staggering 80% of market trades have become electronic provides the perfect platform for the advent of the computer trade program vs the human mind in the struggle for price action. This is truly staggering and the extent of automated trading today is truly unknown. very few banks would care to divulge the details of their algorithm programs that can generate hundreds of millions of dollars if not billions of dollars in arbitrage in the spot FX market.
All the more reason why in the long run the small time trader must quit practicing the staggering amount of freebie demon programs on the internet to trade Forex. should computers rule the electronic markets and move prices by logic then the lure of the Forex platform becomes increasingly more dangerous. The Forex market today belongs to the banking and corporate giants. Gone are the days when Forex houses can scalp a 3 pip spread and match trades.
The Forex markets now belong to a set of secretly guarded algorithmic equations that could move the market in any direction on the dictates of logical premises.
Pieter Bergli - DeLoren Trust Holdings
Forex Education
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Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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