Forex market maker manipulation

Is it true that the Forex Market is manipulated by a lot of banks and market makers? If so, how can we know when they manipulate the forex markets and is it something that requires approach to sophisticated tools? Well, let’s begin by getting a few things straight. Firstly it is true that the forex markets are manipulated and while you don’t need any cosmopolitan tools or secret contacts to know how this happens, figuring out when it happens is not easy for majority of retails traders.

Every trade that is completed in the forex markets need to have a buyer and seller and when this takes place then we have a trade. This happens usually in a fraction of a second electronically but in essence, each time you start a buy trade you are being paired with someone who is excited to enter a sell position and take the opposite side of your trade. If this does not happen then there would not be a trade. Why is this so important? Because it states the problems that large banks have which small traders do not. Any retail trader is able to place whatever position size they wish into the market without ever fearing slippage or bad fill. 

The only alternative is to buy or sell in a secluded way without alerting all the other traders as to what is really happening. How does this happen? This happens by purchasing into selling pressure or selling into buying pressure. In other words, what a market maker will do is do the opposite of what they wanted to do initially in order to push the price to a particular level.

WHAT IS A MARKET MARKER?

It is a financial emissary set up with the sole aim of matching buyers and sellers together to make a commission in the process. For instance, a large European conglomerate wants to purchase outof a US company for $10 Billion. It can’t just go to the bank to change that amount of money. Instead, it will go to a currency broker or a large bank who will complete the transaction by going into the money markets via their brokerage arm.Once the market maker gets the order for the transaction, what they do is to convert the conglomerate’s money from Euro’s into USD. They will, therefore be trading the EUR/USD pair and selling Euro’s and buying USD. Since this transaction of selling Euros and buying USD happens immediately, what the market maker does is to get the highest exchange rate they can for Euros to USD. 

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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