On May 6 2010, we experienced extremely volatile market conditions across all financial markets.
We would like to give you a summary of what occurred to explain the reasons behind todays market volatility.
First, institutions were very cautious due to tomorrows UK Elections, US Nonfarm Payrolls, and the Canadian unemployment rate announcement.
In addition to that we had several market moving events. These include:
7:45 ET European Central Bank Interest Rate Decision
8:30 ET Trichet speaks at ECB Monthly News Conference
14:46 Dow dropped almost 1,000 points and the bulk of the drop happened in less than an hour. The reason behind this drop was reported to be that Citi Banks trading desk accidentally sold 16 billion US Dollars worth of e-minis, when they were supposed to sell 16 Million.
After the big drop, two Fed officials came out with back to back announcements to help stabilize the market.
15:04 Report that Feds Hoenig states that tomorrows jobs report will be positive
15:06 - Report that Feds Evans sees 3.5% economic growth in the US this year
Over the recent months, there has been a strong correlation between the US stock markets and the Japanese Yen. When the Dow plunged today, so did the Japanese Yen crosses. We saw JPY crosses drop between 350 (USD/JPY) and 1248 (GBP/JPY) points. We saw comparable volatility in non Yen crosses as well.
As a result most major banks that provide liquidity to the currency market turned off their FX price feeds for up to 30 minutes. This led to rejected and hanging orders for many FX traders. During this time FXCM immediately routed orders to any remaining banks, however FXCM clients were still subject to the thin liquidity and poor execution being provided by the market.
Market volatility and liquidity has returned to close to normal levels. However, there are still some major market moving events coming up tomorrow so manage your market exposure accordingly.
While FXCM cannot make any overriding statement on adjustments to positions that were negatively affected by todays events, if you would like us to look into one or more of your trades, please submit an audit form through this link Audit Form and our audit committee will follow up with you as soon as possible.
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. Forex Capital Markets LLC. will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.