‘Nothing ever happens’ is becoming the new normal for FX traders

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeNewsEconomy‘Nothing ever happens’ is becoming the new normal for FX tradersA market increasingly built around low volatility may be poorly protected on the rare occasions when that calm breaksAuthor of the article:Low volatility isn’t necessarily bad news for everyone. It can also reflect a liquid and efficient market that continues to absorb shocks in a volatile world. Photo by Peter Dazeley/Getty ImagesCurrency volatility has been so low for so long that traders are starting to treat it as the new normal rather than a passing phase.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThat subdued backdrop was among the major themes at an annual industry gathering in Amsterdam this week for a second year running, with investors describing a market where sharp changes in bonds, oil and geopolitics still struggle to generate lasting currency swings.“What we are lamenting is a secular downtrend in currency volatility,” said Harish Neelakandan, co-chief investment officer at AlphaEngine Global Investment Solutions, a systematic trend-following fund. “That’s the hand we’ve been dealt. We have to learn to live with this.”SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againThis lack of volatility in the US$9.6 trillion-a-day foreign-exchange market is becoming a perennial problem for traders aiming to thrive on big swings. Yet the calmer environment is likely to be beneficial for asset managers and companies looking to hedge their exposure.Neelakandan said greater coordination between central banks has helped contain currency moves, leaving geopolitical shocks to produce only brief bursts of volatility. Unless that backdrop changes fundamentally, traders are likely to keep treating such spikes as opportunities to short volatility once again.“What we’re seeing is the ‘nothing ever happens’ trade, where people just keep selling volatility,” said Thomas Carreau, a currency portfolio manager at CN Investment Division, which manages Canadian National Railway’s pension fund.Even recent yen moves have remained relatively contained, Carreau said. The currency has been in the spotlight in recent months after sliding to the weakest in four decades before joint United States-Japanese intervention to support it caused a series of sharp rallies.He added that carry trades, where investors borrow in low-yielding currencies to buy higher-yield assets, continue to perform well. He prefers to structure them to be dollar neutral because U.S. President’s Donald Trump’s social media posts can still cause small day-to-day swings in the U.S. currency. It’s a strategy that performs well when volatility is low.“Carry is king,” he said.Time BombThe prolonged calm does pose some risk. Harel Jacobson, associate portfolio manager at hedge fund Capstone Investment Advisors, said lower volatility forces traders to put on larger positions to generate the same returns, leaving portfolios more exposed when a rare big move hits.“What you end up with is a ticking time bomb sitting on your portfolio,” said Jacobson. His fund routinely buys cheap hedges designed to protect against unusually large market moves, pointing to last year’s surge in the Taiwan dollar as the kind of event they are looking to cover.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Low volatility isn’t necessarily bad news for everyone. It can also reflect a liquid and efficient market that continues to absorb shocks in a volatile world.“The world might not be reliable, but the FX market is,” said the conference chair Allan Guild, director of Hilltop Walk Consulting.AdaptingCompanies are adapting their strategies. Georgios Velissariou, head of financial risk management at Hitachi Energy’s group treasury, said lower volatility had made options a more attractive way to hedge certain currency exposures.Meanwhile for some banks, the environment is prompting a rethink of parts of their operations. Karel Sanders, head of FX product management at Rand Merchant Bank, said dollar-rand volatility at a two-decade low was forcing the South African lender to reconsider how it runs its options business.“Do we stay principal market makers in FX volatility, or do we become an agency business? We’re leaning more towards an agency business,” he said.There were also signs on the conference floor that traders were looking beyond traditional FX for action. At one stand, attendees were tempted by sweet Dutch waffles to vote on which currency pair would move the most over the main day. The winner was silver against the dollar.A market increasingly built around low volatility may be poorly protected on the rare occasions when that calm breaks. Some see little incentive to prepare.“The market finds itself in a situation where we don’t know what the catalyst will be for the next blow up and no one is positioned for it, because if you’re early you’re wrong,” said Carreau.—With assistance from Vassilis Karamanis.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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