Don’t get me wrong I am not against Foreign Exchange per say its the repugnant Profit made by Electronic Platforms in Foreign Exchange Trading using Algorithmic trading in today’s biggest money market in the world.
Somewhere around 70% to 90% of all foreign exchange transactions are speculative in nature so I will not going to bore you with the in and out of FX Spot, FX Future & FX Option.
All you need to know is that almost all FOREX trades are executed on the internet by someone sitting at a computer with a high-speed connection.
The Forex market owes its existence to the need of banks to buy foreign currencies on behalf of their clients who need it for paying for imports, bring in export proceeds or for funding trade transactions including mergers and acquisitions.
Foreign Exchange or Forex or FX electronic trading now dominates a global decentralized market for the trading of currencies making it possible for small traders to participate in currency trading.
In a global market where traded is virtually around-the-clock money is sold and bought freely between buyers and sellers with over of $5.3 trillion per day in April 2013.
The daily average volume of FOREX is: Almost 5 TRILLION Dollars Per Day!
The FOREX market is so huge and has so many global participants that no single individual nor entity… not even a central bank… can control the market for any significant period of time.
So What is Currency Trading?
Beginning since 1997 to date, more than a trillion dollars of foreign exchange activity has been taking place at Forex, day after day.
FX trading is basically a metaphoric handshake between two parties that trust each other. Unlike other financial markets, there is no commission or transaction fee in currency trading.
There is no broker who acts as an agent in the transaction. Trades are between principals; traders and Forex trading firms, which are dealers and not brokers. The Forex trading firm gets its profit from the spread. The trading is done on margins over-the-counter and there is no clearing house through which trades are routed.
There is no regulatory body nor is there any mechanism for settlement of disputes. Trades are initiated and closed directly between buyers and sellers.
This may appear to be nothing more than the proverbial handshake and an ad-hoc arrangement to investors who are used to strictly regulated and structured trading in stock exchanges.
It is a game for big players who have experience and up-to-the-minute information. Currency speculators place their bets in dizzying amounts with a few clicks.
Recently Bankers were rigging the £3 to 5 trillion-a-day foreign exchange markets. Five of world’s biggest banks are fined record £2 billion. RBS, HSBC, JP Morgan Chase, UBS and Citibank fined in UK and U.S. Barclays will also be fined but they are still negotiating their punishment
Global banks agree to pay $4.3 billion for manipulating currency markets.
However this scandal involves regulators from multiple jurisdictions. The CFTC, the Commodities Futures Trading Commission from the US. The FCA from the UK and the Swiss Financial Market Supervisory Authority all work in conjunction. The scandal occurred during the worst part of the financial crisis of 2008.
The traditional market structure based on dealer-customer relationships has given way to a trading network topology where both banks and non-banks act as liquidity providers. This is effectively a form of “hot potato” trading where dealers are no longer necessarily at the center.
The growing participation of non-dealer financial institutions is being fueled by hedge funds, high-frequency trading managed and by professional asset management firms, captured under the two labels “institutional investors” (eg mutual funds, pension funds and insurance companies) and “hedge funds”, specialise in algorithmic and high-frequency strategies in spot markets. and sovereign wealth funds.
Over the period 2007-13, algorithmic trading at EBS grew from 28% to 68% of volumes. HFT strategies can both exploit tiny, short-lived price discrepancies and provide liquidity at very high frequency benefiting from the bid-ask spread.
What we now have is a non-transparent market globalized money system that recognizes no geographic boundaries which is undermining the ability of each national government to control its money supply and influence the value of its money.
To me, it is not trading itself that is unethical. It is that the unfettered accumulation of capital for its own sake, without regard for the effects of consumption (in a practical, material sense, as well as from an environmental standpoint), and without any attention paid to using that capital for the betterment of us all. We all too often live without regard for others, and are encouraged to do so by a value system that prides the individual over the community. Transactions do not provide a good or service to anyone.
The rapid increase of international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race is now a war waged by Commerce.
EVERY DAY WHILE MILLIONS LIVE IN POVERTY OF OPPORTUNITY while there are trillions in currency traded for Profit.
Literally all this takes only a few seconds. Wonderful is it not?
It’s now or Never.
What to stop us from placing a World Aid Commission of 0.05% on all Foreign Exchange Electronic transactions over $20,000.
Combined with its friend High Frequency Trading it could produce billions to benefit us all. (See previous Posts)
You can bury your head in the sand. You can continue ignoring the warnings but if we are to have a peaceful world wealth made by these methods must be distribute.
What will the FX version look like in 3 years?
For sure like it and its friend HFT are going to disappear into the cloud with a click of a mouse from your tablet or phone. Mobile trading capability combined with bio-identification (fingerprint, IRIS, voice) is just around the corner with Operational FX going live, automated and synchronized with the underlying stock or bond trade, —of the original securities trade, not hours or days later but in seconds.
One thing is clear:
Armed with next-generation technology, traders will have a deeper understanding of the markets and the ability to execute adaptive, finely tuned strategies to make profit.
In the future, traders in each and every asset class will manage their whole workflow in a single super system computer that makes fragmented information, manual error risk, and connectivity issues things of the past.
Cloud services will make connecting disparate legacy trading systems as simple as inserting a “smart controller” into your house’s electrical circuit box.
Will we be rich. Certainly not.
All this means that many governments end up with fewer policy options to control the level of employment and inflation at home, and even governments that retain substantial control of their monetary policy may be forced to set interest rates higher than desired in order to prevent the flight of capital out of their country.
In the absence of capital controls, this increases the magnitude of over borrowing and leaves the economy both more vulnerable to speculative attack and more exposed to the real economic consequences of such an attack.
If an investor can earn 8.5% interest on deposits in England, but can pay 1% interest for the use of money in Japan, then the investor would pay to borrow the Japanese yen in order to buy the British pound. Such trades take place all the time and in very large numbers.
Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined by the flows of currency in and out of a country. A high demand for a particular currency usually means that the value of that currency will increase.
FX is assimilating all of the amazing advances that have come up in consumer technology in recent years eroding the normal demand for a currency which is created by tourism, international trade, mergers and acquisitions, speculation, and the perception of safety in terms of geo-political risk. Replacing it with profit for old rope.
The oil price crash is now upending the global economy, with ramifications for every country in the world.
The world is full of potential surprises. Let us surprise them by lobbing the United nations to pass a peoples resolution placing a World Aid Commission of 0.05% on ALL Foreign Exchange Electronic transactions over $20,000.