Isaac Lieberman loves a good flash crash. There’s nothing nefarious afoot here, to be clear. It’s just that at a time when many currency-trading firms don’t know what to do when extreme price fluctuations hit, Lieberman’s brought together a bunch of military and tech gurus to form a firm -- Aston Capital Management -- that’s designed to thrive at those moments. When others shut down, it gears up.
“We get very excited about flash events because it gives us data to work with that’s very hard to come by.You can’t simulate things like this.”
Violent shifts in the $5.1-trillion-a-day foreign-exchange market have become more common in recent years. New players such as Aston, which began in 2014, have emerged as electronic market makers. They offer to buy and sell currencies to customers even during the hairiest price swings and hope to profit when prices bounce back.
Aston and firms including XTX Markets, Citadel Securities and Virtu Financial are stepping into a gap left by traditional dealers. Stricter regulation enacted since the 2008 financial crisis has prompted some banks to withdraw from the market and cut staff. That’s created a vacuum which makes it more difficult for customers to trade when they want to, at the prices they want to.
The new era of turbulence began in 2015 when the Swiss National Bank jolted foreign-exchange markets by abandoning its cap on the franc, triggering a rally of about 41 percent in 20 minutes.
Most recently, the euro surged 1.6 percent over several minutes during Asian trading in December. Before that, in October, the pound slumped about 9 percent in a matter of seconds, prompting a review by the world’s biggest central banks. The South African rand and New Zealand dollar also took similar roller-coaster rides. Lieberman said Aston traded $500 million in 90 seconds during the pound’s plunge.
The firm handles an average of $1 billion to $2 billion dollars a day -- they’re not just a flash-crash shop, of course -- and it returned more than 22 percent last year through November, according to a company performance report.
For many in the market, flash events are a time to play it safe. Dori Levanoni, a partner at First Quadrant, a Pasadena-based hedge fund that manages about $12.6 billion in currency strategies, said that portfolio managers and traders can hit the pause button and wait for better market conditions before placing orders.
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