May 5, 2012

Trading Apple stock is Like Trading Deutsche Mark

Trading Apple stock is like trading Deutsche Mark several years ago.

Vincent Cignarella writing the The Foreign-Exchange Traders’ Lament
The new age of currency wars with many governments attempting to keep their domestic currencies weak in an attempt to export their way out of slow growth has clamped down foreign-exchange movements and severely limited traders’ opportunities to make money.

When central banks artificially constrict market movements in any asset class, pressures build. An unexpected global event could trigger a violent rush for the exits, one central banks will be a loss to contain.

Many of the largest banks that trade foreign exchange–from Bank of New York Mellon to State Street to Goldman Sachs –are reporting declining volumes as retail, corporate and professional traders sit on the sidelines waiting for the stalemate to end.

The EURCHF chart above is a prime example – the price is stuck solidly at 1.2. 
Swiss National Bank, in an attempt to weaken its currency against the euro, has instituted a floor of CHF1.2000. Though that is far above what the current anti-euro mood would suggest as fair value, the market doesn’t dare challenge the SNB edict, so the pair simply stagnates just above CHF1.2000 and has all but ceased to trade.

And so on with all the major currencies.

Former FX traders like the volatility in equities, especially Apple stock. Trading Apple stock is like trading Deutsche Mark several years ago.

Tags: algo trading, central bank control, major currency pairs are fixed, Apple stock Deutsche Mark