My Condolences to the Currency Professional

The currency markets are exploding with a new vibrancy and vitality as both large and small-money investors seek ways to get involved with the new hottest show in town.

It probably feels good for the providers of tools and platforms, it may even have the feel of an awakening or a renaissance.

It isn’t.  It is a Fool’s Goldrush and will end horribly for most, my condolences to the real currency and forex market pros.  As someone who lived through the disintermediation and disillusionment of an asset class mania firsthand, I can tell you that the currency volume bubble (can’t be a price bubble, after all) will lead to the pulling forward of a few decades’ worth of health and prosperity.  This will lead to some innovation but even more new industry participants.  This will result in a nasty bout of price-cutting, middle-man slaying and industry reputation tarnishing.

The bad news is that it cannot be stopped at this point.  The good news is, you can take the cautionary tales of the stock game, the mortgage game and the real estate game and figure out how you want to be positioned when the inevitable boom-bust-hatred cycle shifts into high gear.

The story begins, like it always has, with a inkling of abberant interest in a twinkling “new” game of speculation.  The Wall Street Journal sets the scene with some numbers:

Currency trading volume around the world has hit $4 trillion a day, fueled by investors in the wealthiest nations looking to diversify beyond their home markets in a time of economic turmoil.

The $4 trillion mark represents a 20% gain from $3.3 trillion in 2007, the last time the global foreign-exchange markets were surveyed, according to the Bank for International Settlements.

Our story continues with some sense of large corporations looking to bring this activity to the mainstream via new offerings and access paths.  Oh wait, what’s this?  A press release from TD Ameritrade touting their new Forex trading offering from August 24th?

TD AMERITRADE Holding Corporation today announced that futures and spot forex (foreign exchange) trading capabilities are now available via the firm’s thinkorswim from TD AMERITRADE trading platform, joining the recently introduced complex options functionality.

And who will this product be aimed at ultimately, both barrels cocked and loaded?

Same people who were offered the chance to become overnight real estate tycoons, like, ten minutes ago.

“‘Our mission is to provide the trading platform of choice for active traders and investors,’ said Steven Quirk, senior vice president, trader group for TD AMERITRADE”

Allow me translate for the spokesman of a company that once featured Jackie Chan kicking in stock trade orders on a flying laptop whilst fighting off bad guys in commercials circa 1999 – “Our mission is to get the hoopleheads of the world to, at the very least, give us a cut of their losings as they learn about the ferocity and profundity of global currency”.  Or something like that.

They will make this a game, you will be the little pewter steamiron game piece –  manipulated around a board of plastic hotels that everyone owns but you.

Pain is coming to the currency trading markets, some for the pro, a lot for the individual.  Cost cuts as the industry gets overgrown and crowded out are sure to follow.  Then everyone loses interest and no one wins.

Remember I said it.

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