I trade mostly spot forex, so my comments are limited to that market. Also, my trading is moderately high-frequency.

From my perspective, there has been a pretty big change since mid-2008. Liquidity has dried up, and spreads have increased. That makes it more difficult to be profitable. For example, one year ago a typical spread in a currency pair might have been 2 pips, and now it is 3 or 4 pips. Furthermore, it is hard to get filled at a decent price for larger orders…it seems like market reactions to your order are a little more sensitive.

Not surprisingly in a time of such turbulence in all financial markets, volatility has increased. I'm seeing more breakouts, which I attribute to greater uncertainty and thus sensitivity to market-impacting news. Or, perhaps it is just that the news recently has been of greater "amplitude".

I think there has been a gradual trend to return to what I would, with my limited experience, consider "normal". That process will likely require many more months. As you may know, liquidity in the forex markets is primarily supplied by banks, and to the extent that they become more risk-averse, the market will continue to suffer.

Jim Sogi's question was:

Have you noticed a change in the markets due to the changes in the large investment banks such as GS, Leh, Bear Stearns or other large funds? I can't really quantify it or pinpoint it in a meaningful way yet, but it just seems different, more rhythmical, less jerky, and easier in some ways. It seems more large crowd oriented, fewer huge orders in the pipe or ts.

Stefan Jovanovich adds:

In the days when boxing was THE American sport and New York City was its Mecca (when, according to the promoters for the old, old Madison Square Garden at least one of the fighters had to be or pretend to be Jewish if you wanted to draw a decent crowd), fighters would work a whole round to set up one punch. George just won the prize for champion of the List for January with a knockout right cross at the bell.

George Zachar writes:

The few pools of liquid discretionary capital remaining face the prospect of Barney Frank acting as a Caligulan Nero overseer.

Transient calms of nostalgic transactional ease only remind us of the wreckage on the seabed, and capriciousness of our new masters.

The fixed income market, once the most comely of mistresses, is now a Frankenstein's bride; a halting, disfigured, spastic wreck.


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