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Maggette


Total Posts: 1129
Joined: Jun 2007
 
Posted: 2019-04-22 14:45
I do understand that this is a quite pointless operation, since I do not see a way to define "speculation" in a precise way and the FX market is a strange beast (lot's of swaps, big OTC market).

Still I have heard different stories from several sources in the industry and academia, stating exactly orthogonal positions on that topic:vast majority is speculation or speculation is dwarfed by true exposure to FX....

I don't see how BIS data could help here, do you guys see a good way to get a first order approximation on that question?

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

quantie


Total Posts: 889
Joined: Jun 2004
 
Posted: 2019-04-22 16:10
One approximation is look at the volume of fx options on SDR(DTCC data) and look at the high delta vs low delta trades. Typically low-delta options are used by corporates for hedging (they just want to take the tail out of the picture) and they don't have premium to spend. The high delta is mostly speculators/hedge funds/banks.

EspressoLover


Total Posts: 368
Joined: Jan 2015
 
Posted: 2019-04-22 17:00
The problem's even thornier then you think. A lot of "speculative" order flow, particularly the dumb retail variety, is internalized well before it ever reaches anything resembling a real market. I really doubt Plus500's CFDs are showing up on any BIS survey.

My gut sense is that most of the volume is gambling, but the bulk of the positions at any given time are "real money". You have a lot of day traders who have small position limits, but ridiculously high turnover. However I'd guess that most of the major movements are being driven by central banks and other whales. They don't contribute that much volume but do take such huge positions that they soak up a ton of liquidity.

Good questions outrank easy answers. -Paul Samuelson

Maggette


Total Posts: 1129
Joined: Jun 2007
 
Posted: 2019-04-22 17:55
" A lot of "speculative" order flow, particularly the dumb retail variety, is internalized well before.."

I did a small project for an aggregator once, so yes...that's a problem.

I think I share your "position vs volume" view on things...I just would like to have some proxy, but I can't think of any.

Thanks to both of you. Will look into the sizes of high vs low delta FX Options.

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

ronin


Total Posts: 457
Joined: May 2006
 
Posted: 2019-04-23 13:53
> A lot of "speculative" order flow, particularly the dumb retail variety, is internalized well before it ever reaches anything resembling a real market.

Speculative retail flow is mostly not even hedged. 99% of retail traders lose all their money in short order. Just leave them alone and, in a few months, your profit margin on their deposit is 100%. If it's taking too long, just give them massive leverage.

At least that is how the retail "forex" industry works.

"There is a SIX am?" -- Arthur

quantie


Total Posts: 889
Joined: Jun 2004
 
Posted: 2019-04-24 02:48
I wouldn't worry about retail they are just noise in FX given the size of the market.

Strange


Total Posts: 1557
Joined: Jun 2004
 
Posted: 2019-04-24 17:34
"I wouldn't worry about retail they are just noise in FX given the size of the market."
Yeah, it non-institutional flows only start to matter in real extremes, like in EM currency crashes

Eher Ende mit Schrecken als Schrecken ohne Ende
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