How FX Market Manipulation Works

Unfortunately, market manipulation is real, but it shouldn't affect your trading.
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We just have an interesting question here from a subscriber asking whether it’s true that the Forex market can be manipulated and if so how does it work?

So yes, it is unfortunately true and possible for some of the big players or big market participants to manipulate the market but the good news is that the size is usually so insignificant that you might not even notice and it shouldn’t really affect your trades.

Now, does that make it okay? Of course not but there isn’t much we can do about it as a retail trader apart from just trusting the regulators and the authorities to do their jobs and ensure that these type of things doesn’t happen so, how can the market be manipulated?

Most commonly it’s manipulated at the London fix, which is 4:00 PM London time now at the London fix, there is a second a 60 second gap, 30 seconds before 4:00 PM and three seconds after where the benchmark ethic rates are determined or fixed based on all the buy and sell transactions that occurs at the time so obviously there’s gonna be big companies that wants to make big transactions at that time and they use that 60 second gap to basically have fixed the exchange rates for all of those type of transactions. Now institutions are privy to their own clients pending orders that needs to be executed at the fix.

So imagine that you’re an institutional trader and you have a very large company as a client and the company wants to exchange 5 billion pounds for dollars in order to you know, buy salaries or do a transaction with another company whatever the reason might be.

Now the manipulation occurs when these institutional traders the ones that needs to make the trade on behalf of the company when they start to tell the buddies and other institutions that there’s going to be a massive order for the pound US dollar going through at the fix so what they can then do collectively is place sizable orders of their own, before the fix so they know that the huge order at the fixed will have the potential to move the pound US dollar pay so they can position themselves ahead of the fix and when the actual order of the client gets executed the market slips lower.

Of course, on their own they might not be able to move the price but if you have a couple of institutional traders all joining in the party placing a hundred a hundred million pound orders selling the pound US dollar, all those orders getting executed before the fixed can cause the price to age lower so when the fix is made lower the order of the company pushes the rate even lower than it was.

Now that means that the company gets a much worse full than they could have had without all of the manipulation and the institutional traders simply close out their trades afterwards and they make a nice little profit from that boost to the downside.

Now a couple of big bank traders were actually caught out doing this back in 2015 and even though regulations as increased and regulate this now know what to look for I’m sure these types of things are still going on everywhere in the system.

The good news for us as retail traders is that these types of things are mostly occurring at the London fix so we can be prepared for that we can be prepared for 4:00 PM for potential volatility in the market which means there is there’s less opportunities for traders to capitalize on those types of moves since regulators will be watching and apart from that the moves won’t be you know, a hundred pips, right?

So if you’re placing a 200 million pound order to sell the pound US dollar just pushing it lower a couple of pips already earned you great profits so the type of moves that occurs from these type of manipulations are usually so small that it won’t really affect any of your trades as a retail trader.

So you don’t need to be concerned with it from that point of view, so as we said yes, it’s bad that these things happen. But the good news is that we don’t really need to be worried about it from our own trading point of view but it is good to and worth knowing that these things do exist but yeah, good news is it won’t affect us too much the size won’t really affect the trade a hundred pips so from a retail point of view, we should be safe with regards to these types of manipulations.

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