Is it possible to manipulate forex market?

Hi guys, you are the most experienced, professional traders I know, regarding this topic I need to know your sincere opinions.



Almost everybody in this market keep on saying the same mantra, that is “FX market is too big to manipulate, even for central banks”, are we certainly sure about that. It is said the volume is 20 trillion usd a day, yes it is too big, but I have questions in my mind.

• why it is soooo big, does the world need 20T usd transaction a day.
  
• This amount should be divided into pairs.
  
• This amount should be divided in 24 hours, minutes, including those hours where major markets are closed.
  

I’m not saying manipulate FX market is an easy operation, but possible. Automated trading is an important tool for that, for more information about auto trading:

http://en.wikipedia.org/wiki/Algorithmic_trading



Say some big guys ( I mean real big, those people who don’t dare to bite each other) reserved 1 billion usd for an operation, what would happen if they long or short 1 billion in a minute or less, in a consolidating market after uptrend or down trend, he can create a sudden jump in the prices right, more traders can come into the market after seeing that trend is going on, ( price break out of the range) then he can buy or sell back this amount in longer time, this time not in a minute but lets say in hours or days to new comers or to those adding to their winning positions.

(later repeat the operation again and again, some hundreds even thousands pips are not important for central banks, at end some are happy with their increasing paper money, and they have the printing machines and seems like they are succesfull bankers against inflation )

Automated trading is very important tool for that.



To me even to create a reversal in a currency is possible, at the end there are thousand of traders, brokers who follow charts and patterns, all you have to do, is to create a very obvious chart pattern ( beginning of upward trend or downward trend pattern, can it be a doji star?) to attract others. You don’t have to manipulate all day long, just start the fire, let others do the job. Isn’t strange, some say 95 % of the traders are not successfull, maybe all seeing the same very clear pattern to open a trade.



In stock exchange those kind of manipulative moves can be traced, at least there are organizations to follow that. Let say in forex too, these kind of manipulative transactions can be traced, but are there any organizations to follow these kind of manipulations.



One very obvious example for me is nov 13 friday chart on 16:00 ( a bear trap)



I saw dozens of similar chart, next move can be down move or a weak upward.

http://www.screencast.com/users/almbayrak/folders/Jing/media/d774ddbc-f014-49db-81dd-43054b987079



but suddenly there is this increase, (no news)

http://www.screencast.com/users/almbayrak/folders/Jing/media/9bc295ea-0163-46c9-8604-c4ec0f1aff14



then week ends, many traders close their position before week ends, not to carry risk, (last 2 weeks there were quite big gap openings.)

http://www.screencast.com/users/almbayrak/folders/Jing/media/2ed68dc6-8922-4f78-a20e-30caaef970b8



What do you think about manipulation in forex.

Don’t forget Japan was able to keep its currency weak ( or low better to say) for decades, only by using interest rate tool?

almbayrak66 wrote:

Hi guys, you are the most experienced, professional traders I know, regarding this topic I need to know your sincere opinions.



Almost everybody in this market keep on saying the same mantra, that is “FX market is too big to manipulate, even for central banks”, are we certainly sure about that. It is said the volume is 20 trillion usd a day, yes it is too big, but I have questions in my mind.

• why it is soooo big, does the world need 20T usd transaction a day.
  
• This amount should be divided into pairs.
  
• This amount should be divided in 24 hours, minutes, including those hours where major markets are closed.
  

I’m not saying manipulate FX market is an easy operation, but possible. Automated trading is an important tool for that, for more information about auto trading:

http://en.wikipedia.org/wiki/Algorithmic_trading



Say some big guys ( I mean real big, those people who don’t dare to bite each other) reserved 1 billion usd for an operation, what would happen if they long or short 1 billion in a minute or less, in a consolidating market after uptrend or down trend, he can create a sudden jump in the prices right, more traders can come into the market after seeing that trend is going on, ( price break out of the range) then he can buy or sell back this amount in longer time, this time not in a minute but lets say in hours or days to new comers or to those adding to their winning positions.

(later repeat the operation again and again, some hundreds even thousands pips are not important for central banks, at end some are happy with their increasing paper money, and they have the printing machines and seems like they are succesfull bankers against inflation )

Automated trading is very important tool for that.



To me even to create a reversal in a currency is possible, at the end there are thousand of traders, brokers who follow charts and patterns, all you have to do, is to create a very obvious chart pattern ( beginning of upward trend or downward trend pattern, can it be a doji star?) to attract others. You don’t have to manipulate all day long, just start the fire, let others do the job. Isn’t strange, some say 95 % of the traders are not successfull, maybe all seeing the same very clear pattern to open a trade.



In stock exchange those kind of manipulative moves can be traced, at least there are organizations to follow that. Let say in forex too, these kind of manipulative transactions can be traced, but are there any organizations to follow these kind of manipulations.



One very obvious example for me is nov 13 friday chart on 16:00 ( a bear trap)



I saw dozens of similar chart, next move can be down move or a weak upward.

http://www.screencast.com/users/almbayrak/folders/Jing/media/d774ddbc-f014-49db-81dd-43054b987079



but suddenly there is this increase, (no news)

http://www.screencast.com/users/almbayrak/folders/Jing/media/9bc295ea-0163-46c9-8604-c4ec0f1aff14



then week ends, many traders close their position before week ends, not to carry risk, (last 2 weeks there were quite big gap openings.)

http://www.screencast.com/users/almbayrak/folders/Jing/media/2ed68dc6-8922-4f78-a20e-30caaef970b8



What do you think about manipulation in forex.

Don’t forget Japan was able to keep its currency weak ( or low better to say) for decades, only by using interest rate tool?

People who say the markets cannot be manipulate, IMHO (in my humble opinion), do not understand the system at hand. Either that they are talking about 1 institutional player alone cannot move markets. However I will give a few examples where 1 single institutional player or players have moved FX markets.

1). George Sauros (not the TLOT sauros lol) he made over a billion dollars betting against the BOE, that is not market manipulation per say but he moved a boat load of money and Im the pound wouldn't have been bad off if that bet wasn't in place (though im sure some academic heads would like me to show the evidence for that, but thats just my speculative thoughts).

2). QE programs alone are in itself market manipulations whether or not it is direct or indirect. Changing the amount of reserves, buying treasuries, holding debt, money creation, money expansion it all will some how affect currency prices. Social political systems all the time affect the pricings of their currencies. back in the day the BOJ and the EU were big proponents of "controlling" (manipulating) their currencies to maintain exports.


All in all i guess its how one wishes to define "manipulation," but hopefully these examples have helped a little bit.



-snapman

PS: history is always a good place to look for answers

Hi almbayrak66, it's fun that you raise this point here because i'm currently writing a post on how i believe the FED tried to manipulate the stock markets last year...

Forex is definitely the most liquid market but it doesn't mean that there is no manipulation (quite the opposite). To me, it's part of central banks "job" to do anything they can to control the stability of their currency, anything includes of course manipulation : To me all the interventions are purely manipulation, the rates are the price a
central bank is ok to pay to bring the currency where they want, quantitative easing is the central bank buying currencies with printed money, even the rhetoric of the governors is a kind of way to manipulate as every word is analyzed and assessed. Two examples of central banks manipulation I have in mind now is firstly the China. They keep their currency the CNY weak in order to be competitive. In order to do so, they massively purchased foreign currencies (a reserve of 2.3 trillion most of it USD), that's purely manipulation. The other example is one you mentioned earlier in another thread: the example of gold. Without central banks interventions to weaken it, it would be probably somewhere near the moon (I mean even more...) as we speak.

Now, regarding the investment banks. Actually I never traded forex professionally and only know a few "real" forex traders (I mean most of fx traders here just sell at 43, buy at 40 hedging in the middle all day, that's not "real" trading). Further to my discussion with a guy who traded forex 5-10 years ago for "real", it seems that (at that time, but i guess it has not changed much)
- an order of 100 million on EURUSD was enough to shift the market of a few pips for a few seconds
- front running was a current practice : you need to buy 500 million EURUSD for a client, you purchase 600, the first 100 are for you. As the 500 remaining push the market higher, you bank your profit (that's your client's money, of course it is forbidden but...)
- as we discussed earlier, only a few banks make the forex market, I guess their good clients "know" where the stops are and stop gun...
So as you can see it looks like it's not that difficult to manipulate the forex market.

To come back to your example of a guy who purchases 1 billion EURUSD, if the spot is at say 1.50, even if the forex is ultra liquid, this buyer would definitely not get it at 1.50 but would be crucified on the price (I'm not sure but could be 1.5010, 1.51, 1.6 or 2 i don't know how deep the market is and i never tried to trade 1 billion of my own money ). In such a case the guy needs to split and buy by block. The use of a robot wouldn't change anything, he wouldn't get 1.50 as any combination between 1 billion 1 EURUSD order to 1 order of 1 billion EURUSD would push the prices up. To some extent, he frontruns himself and is not sure he will trigger a trend... that's a risky business

Finally, it's difficult to compare the 20 trillion you mentioned with anything else, the forex market is 95% speculative. It doesn't mean that 95% of traders take position but it means that only 5% of the deals are physically settled for real money. It means the market trades much more money than what really exists... to some extent those 20 trillion are fake and the figure itself doesn't make any sense...

Snapman wrote:

People who say the markets cannot be manipulate, IMHO (in my humble opinion), do not understand the system at hand. Either that they are talking about 1 institutional player alone cannot move markets. However I will give a few examples where 1 single institutional player or players have moved FX markets.

1). George Sauros (not the TLOT sauros lol) he made over a billion dollars betting against the BOE, that is not market manipulation per say but he moved a boat load of money and Im the pound wouldn't have been bad off if that bet wasn't in place (though im sure some academic heads would like me to show the evidence for that, but thats just my speculative thoughts).

2). QE programs alone are in itself market manipulations whether or not it is direct or indirect. Changing the amount of reserves, buying treasuries, holding debt, money creation, money expansion it all will some how affect currency prices. Social political systems all the time affect the pricings of their currencies. back in the day the BOJ and the EU were big proponents of "controlling" (manipulating) their currencies to maintain exports.


All in all i guess its how one wishes to define "manipulation," but hopefully these examples have helped a little bit.



-snapman

PS: history is always a good place to look for answers

Hey Snapman, how did you find out that the guy that broke the BoE in 1992 and the poor guy, working as a slave for an IB and spending his time blogging here was not the same person?

More seriously, I agree with you and while you posted your answer I was writing mine a bit in a similar way. This said, I'm not sure Soros attack of the British pound in 92 is the perfect example of forex manipulation. While Soros position had definitely an impact on the fall of the GBP, that was the BoE that depreciated the currency initially. Soros was not alone betting on this, but he was the only one that put a big position and let his profit run enough to bring back home 2 billion (1 billion on the GBP and 1 billion of various positions, long uk stocks, short other european stocks, long French Franc, Deutschmark etc), I'm sure his wife was happy that day...

Hey guys, thank you very much for your opinions, I would be quite disappointed if you say, it is not possible to manipulate forex.

The point is, one investor or a group can invest for the depretiation of a currency, if this currency in fragile position, it may go down or up (but if you do that with bulk amount and with a group or attracting groups into this pair with your bulk, this may be accepted as manipulation.)

Central bank acts, I prefer to call as intervention, after all this mess created from manipulators and investors, somebody must clean up the mess, swiss central bank is doing that from time to time in eur/chf.
But on the other hand, if central bank keep currency low by purpose (increase export, trade, decrease unemployment... this may be manipulation)

Actually I mean pure manipulation, brokers A,B,C... buy the bulk amount in a nano second (this was an exageration I know), brokers E, F, G...., sell later the bulk amount back in relatively longer term with auto trade in small amounts (actually you dont even sell all the bulk amount after price increase, after pocketing the original bulk, the rest is profit) , (to call this as manipulation bulk must belong the same group altough brokers A,B,C,D......are use for the operation), if you do that in a strong currency like aud, cad, eu, no one blame you, you can even read articles "risk appetite increases" risk aversion, petroleum, gold price trigger last move... Hey, you can even have selected people in papers to write some articles, "buy this".... or more politely "technical analysis says"......

These are OK, those people always try to exploit others, my point actually, is it forbidden manipulation in forex? Is there any law for it, any official organization to trace these kind of moves. Or is this "no one's land" international area, are we, traders in the hands of big instutitions. Did you hear or red any articles about it.

Recently Mexico credit note decreased BBB+ to BBB and peso starts to increase, an explanation from some institution, "we think mexican peso is under valuated and we waited for this specific moment to enter."

In school they taught us, inflation is the main factor for the valuation of a currency, no one talked about institutions.

But mostly they play for the increase of the currencies, so everbody happy, but the other pair mostly usd. Anyway we have "extended period"

be the power with you in your tradings

almbayrak66 wrote:

Actually I mean pure manipulation, brokers A,B,C... buy the bulk amount in a nano second (this was an exageration I know), brokers E, F, G...., sell later the bulk amount back in relatively longer term with auto trade in small amounts (actually you dont even sell all the bulk amount after price increase, after pocketing the original bulk, the rest is profit) , (to call this as manipulation bulk must belong the same group altough brokers A,B,C,D......are use for the operation), if you do that in a strong currency like aud, cad, eu, no one blame you, you can even read articles "risk appetite increases" risk aversion, petroleum, gold price trigger last move... Hey, you can even have selected people in papers to write some articles, "buy this".... or more politely "technical analysis says"......

Hey almbayrak66, I see the manipulation you're talking about... I would say this kind is more tricky and difficult in Forex than in other markets, because of the high liquidity... As said before, in the forex market, this kind of manipulation could be pretty risky: even if you manage to buy in bulk a currency (and that's not easy at a good price, see my previous answer), your position can be wiped out in minutes for a reason you don't control.

Another thing regarding the big players: my feeling is the main banks of the street often advise throught their research the very opposite of their actual position. For example, if they want to get rid of a stock they're not happy to see on their balance sheet, their research could publish loads of articles recommending to buy it. The same thing with the "gurus": Soros, Rogers, Paulson, Buffet... They master the power of their rethoric and know perfectly the impact they can have, I am extremely cautious when they give some advises. Why a guy like Rogers would give on TV his actual position or what his next move will be ???

http://www.bloomberg.com/apps/news?pid=20601083&sid=adzko0br3qZs

http://www.bloomberg.com/apps/news?pid=20601083&sid=aebo0hYkrQz0

almbayrak66 wrote:

http://www.bloomberg.com/apps/news?pid=20601083&sid=aebo0hYkrQz0

very interesting article. Do you actually think the EU is strong enough to reform the western capitialistic model? I mean we have all seen how everyone else reacted to their HF reforms. I forget the statistic but a good number of major HF players decided to leave the UK when the UK followed EU suite. And this is not even mentioning how young Asian economies are. A more socialistic policy is definitely not on Asian agendas.