I was recently at a breakfast meeting when a senior FX player explained to me why implied volatility was so low. His view was that “idiot retail traders” from Asia kept selling it because they didn’t understand the market; ironically, he added, the idiots were getting it right.
A report appeared this week on Bloomberg that reiterated the view that Asian retail punters are having a major impact on FX. Headlined Housewives Outmaneuver UBS, Deutsche Bank Trading Yen, the report detailed how Japanese retail traders were basically bashing the big boys around, “confounding predictions by strategists at Deutsche Bank AG and UBS AG for gains of about 1 percent”. As I mentioned earlier, the Annie Dotal evidence is never wrong. Perhaps strategists need to spend some more time in the real world.