Friday brought the news that some of the world’s biggest banks have been fined $1.2 billion for rigging forex markets.
What I find most amazing about this news is not that this fraud has taken place but that it has received almost no attention on social media.
The forex markets have been rigged in the most blatant way (using online chat rooms) yet most forex traders on social media couldn’t care less.
What Happened Exactly?
Barclays, Citigroup, JP Morgan, MUFG and RBS were all found guilty of setting up cartels to manipulate prices on 11 currencies including the dollar, euro and British pound over a period of approximately 10 years.
Citigroup was stung with the largest fine of $311 million while UBS was left unscathed having reported two of the cartels to authorities.
The investigation found that most of the conspiring traders knew each other personally and exchanged information via online chat rooms they set up such as “Essex Express ‘n the Jimmy”, “Semi Grumpy Old Men” and “Three Way Banana Split”.
These traders swapped information on clients’ orders, revealed their open positions and co-ordinated trading activity amongst other crimes.
In particular, the “Three Way Banana Split” group (made up of traders from Barclays, Citigroup, UBS, RBS and JP Morgan) was fined a total of 811.2 million euros.
Does Anyone Care?
There have been numerous cases of price manipulation in the forex markets and this is yet another example.
But even though fraud in the forex markets is nothing new, when I first heard about this news I was quite shocked.
For me, it just reinforces my view that forex markets are very difficult to beat and is more evidence for why I refuse to trade the FX markets.
However, what surprised me most was the backlash on social media or rather, lack of it.
In fact, this news hardly caused a ripple on Twitter. Nobody retweeted it. Nobody expressed any outrage. No-one talked about it.
Perhaps the forex gurus dismissed it because the news doesn’t fit in with their portrayal of the ‘FX lifestlye’. Perhaps retail traders just didn’t see the news in their feed.
Self Delusion Bias
Whatever the reason there surely has to be an element of investor delusion here too.
Huge numbers of retail forex traders lose money in the markets every day and here they are presented with evidence that some of those losses are caused by banks rigging the markets.
Yet still they choose to dismiss the news and carry on tweeting about double tops and head and shoulders.
Obviously it’s the case that many forex traders are just in the market for fun or to satisfy a gambling addiction. Otherwise, they would surely be taking this news more seriously.
How To Protect Yourself
The truth is that self-delusion is a human trait that we all suffer from. If it makes life easier to bear then we have no problem altering our perception of reality slightly.
For example, sometimes I tell myself red wine is good for my health even though I know that after a glass or two those health benefits are mostly lost.
And sometimes when I look at a chart I can become convinced that the market is going up just by looking at the candles.
I’m sure this is a type of optimism bias that we all have. Because I want the stock to go up I immediately visualise it doing so, as if on auto pilot.
This self delusion trait is very damaging in financial investing because it causes you to make poor decisions out of undue optimism.
And this is just another reason why I prefer to take a systematic approach with trading. If I follow a system (or even a checklist) I know I can remove most of my human biases.
Meanwhile, the rigging of forex markets (and the supreme efficiency of those markets) is why I stick to equities.
Don’t get me wrong. Equity markets have manipulation as well (especially in penny stocks or around earnings) but I feel much safer in equities than I do forex or, god forbid, cryptocurrencies.
thanks for the article, I was also impressed that nobody gives a damn… I myself have moved on to trade indices and have been blown away by how harmonious price action can be compared to FX
I haven’t traded FX for some time so not sure how they compare but glad you prefer the indices. Cheers!
Hallo Joe, is possible to communicate with you by mail?
by email? yes firstname.lastname@example.org
Rigged? absolutely! do I care? NOt at all!
because if you retail trader on a decentralized marketplace you trade only against yourself,
trading technical, is 99% a probability game and with or without being rigged, that will be just the same.
trading Fundamental, the “rigging” makes very little difference, as the movements are far greater.
trading events: is just gambling 😉
Maybe but surely it is better to trade a market where the playing field is more level. Anyway I understand your view and appreciate it. Thanks.
I was also a fx trader but felt something was wrong with how alot of the trades were going, i have recently switched to futures and find it more reliable.
Thanks for sharing your experience.
Hay Joe, Aweomse article. Anyway! It’s rigged as the same as the casino. A good article buddy exposing this industry.
As you said, the banks are simply playing their peanut prop amounts in consonance with the market moving client orders. Their own orders dont have much effect on the Techs, but their collaboration to advise on key prices to clients and then make time-coordinated transactions probably makes market movement smoother if nothing else. They are simply obtaining the pricing information before price gets a chance to print and therein lies the crime. But is it? A trader at a huge bank may receive multiple orders that move markets and as long as he doesnt share them, he is allowed to take a prop position on his expectations. Why is that not a crime? But to say that Forex is rigged is near impossible. For obvious reasons.