Short Volatility Trades Are Starting to Rule Currency Markets
- Dramatic swings have vanished from global foreign exchange
- Traders say options strategies are suppressing volatility
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Betting against volatility has become a profit-minting machine in currency markets. So much so that Wall Street firms say clients are giving up on wagers that go in the opposite direction.
That’s a seismic shift in the $7.5 trillion-a-day foreign exchange market. The fluctuations that traders historically used to play with have largely vanished as a new breed of algorithmic traders bet markets will remain calm. To the heads of currency derivatives at Bank of America Corp., NatWest Group Plc and UBS Group AG, it’s creating a cycle that keeps feeding profits to anyone in favor of ever-smaller swings.