TraderTools foreign exchange blog

Top Trading Opportunities for Institutional FX Market Participants in 2020/2021

By Drew Niv, TraderTools Investor
June 30 , 2020

EM + minor currencies: The USD, EUR, and JPY have continued to elude the econ 101 text book and print money without consequence. Insatiable global demand for safe haven paper has not abated and only grows with each crisis. Other currencies will not be so lucky. Minor currencies like the scandies as well as all the major EM currencies are going to have a rocky and therefore VOLATILE road balancing the money printing that is necessary for recovering from COVID-19 with the need to keep the currency value from heading to oblivion. We are already seeing struggles in many countries, and this is set to continue especially with economies that depend on tourism or oil. With volatility spreads have widened considerably. As western economies recover many EM markets set to capture the economic and geopolitical headlines for the remainder of the year and probably well into next year. There is a golden opportunity here as these are harder to trade currencies with little liquidity and offer great rewards for those who get this right as very few do it today making it a much less competitive field then G5 currencies. TraderTools already does about half its business in these currencies and is always looking for more makers and takers to join its ecosystem and connect to our existing flow. Specifically for those seeking to show interest on anonymous venues (TraderTools is not the market data business neither historical not real time, and the venues and clients who use TraderTools enjoy complete anonymity).

 

Precious metals (gold and silver): whether money printing and massive deficit experiments trigger inflation or not there will be multiple scares that it may, and that portends for a bull market (even a temporary one) in precious metals just like the period following the financial crisis. Here also liquidity is thinner and competition not as fierce as most providers aren’t that great in pricing gold. There is a great opportunity here. As an example, most retailFX firms do over 10% of their business in precious metals and that is in time of lower volatility. If volatility in precious metals pick up expect that number to be 25%. While gold risk is often warehoused and firms hedge fractions of what they deal with their customers the resulting flows are hard to price (given size) and gives non established entrants a way in. Silver flows although a fraction of gold is rarely warehoused risk wise so hedged flow is far friendlier for the most part. TraderTools will be unveiling a major initiative in Asia in the coming months, while not specific to precious metals, it will be heavily weighted toward it.

 

Crypto currencies: Yes cryptos, take it from a crypto skeptic this was not easy to write. I believe crypto currencies to be one of the more popular way for many citizens of emerging market countries to convert their assets into ultimately dollars or euros. the turmoil I wrote above in EM countries is likely to trigger and has already started to a bull market in crypto currencies. Given a largely shallow, and substance free mainstream media landscape that is more interested click bait then news, this bull market is likely to be billed by many as the beginning of the end of the USD and other mainstream currencies further hyping participation in a population that will already be angry with their respective government post COVID-19 (and therefore just like post financial crisis susceptible to this kind of messaging). A sustained bull market will bring massive retail participation just as the last bull market did in 2017 as well as a greater institutional participation. Given the still serious lack of proper plumbing in cryptos the inefficient trading opportunities that will be available are a trader’s dream come true. TraderTools is looking for partners in this space who want a reliable, robust proven trading system which continues to serve multiple of the world’s largest banking institutions (1 customer in top 20 and multiple in top 50).

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