Sudden, violent and often quickly reversed price moves are now a regular occurrence in world currency markets - often during the so-called 'witching hour', a period of thin trading between 5-6 pm in New York when currency dealers there have powered off and colleagues in Tokyo have yet to sign on.
Bankers and policymakers agree that an industry-wide switch to machine-trading in FX markets is behind the frequency and severity of the price moves, meaning that further crashes are likely. But problems arise when market conditions change, for instance, when trading volumes suddenly collapse or volatility spikes as has been the case during Britain's protracted attempt to extricate itself from the European Union. At such times, algos are often programmed to shut down.
The second was on February 11 when the Swiss franc gyrated frantically, with an unexplained and brief jump against the euro and dollar. Upto 70per cent of all FX orders on platform EBS, one of two top venues for currency trading, now originate from algorithms. In 2004, all trading was undertaken by humans.
The 'FX Global Code' was developed by central banks and private sector participants to promote a fair and open FX market but it is not legally binding.
Source: News Formal (newsformal.com)
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