At various times we’ve looked at the market set-up, the interbank market, hedge funds and real money, and the impact of order books. Seeing as it’s sooo dead, why not have a look at a growing phenomenon; Algos.
Algos have become very big over the last 18/24 months and they are a huge part of intraday liquidity. Many of them are only trying to make a very small number of pips, from 0.5 to 10, but they trade in very large size. They run programs which look at price history, current price action, volumes etc and these programs are designed to predict where the next small move is likely to go. When the percentages are high in their favour, they will trade large amounts and try and move the market in their preferred direction. They are often very active in illiquid markets like early on a Monday or around the NY close.
Good interbank dealers are now figuring out how the Algos operate and are able to manipulate the micro market movements to suit their own needs; spoofing the machine so to say. (Sometimes market participants are able to generate a small advantage for themselves, but it seldom lasts for very long).
