Foreign Manipulation

FX traders are gaming the system. Who knew?

A Bloomberg story reports that traders in the $4.7 trillion-a-day foreign-exchange market are manipulating their transactions in order to maximize their personal profits. Sometimes they’re front-running client orders; sometimes they’re breaking trades up in order to alter the daily “closing” price. In many cases they’re chatting online with their buddies at other banks so they can all profit.

This latest episode of market manipulation comes on the heels of the LIBOR scandal. Ironically, it’s unclear if any crime has been committed, since foreign exchange isn’t a financial instrument and by its very nature is cross-border. But it’s an essential function of international banking. Global trade and investment couldn’t happen without deep and liquid currency markets.

The forex market never really closes, but the process of calculating daily rates for global settlement is automated and open, so major players know just what to do to push the price around. Sometimes, that can result in hundreds of thousands in profits from one large trade–profits that come at the client’s expense, and accrue to the trader’s bonus.

These traders are compromising the market’s integrity for their personal gain. They don’t deserve to be in finance.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:34:39+00:00 June 13th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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