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Introduction

 

In any convention of economic interest, buyers and sellers are connected at one point: the price that defines the transaction. Whenever pricing mechanisms are obscured, monopolized or manipulated by a minority of market participants, the majority pays a cost. Not necessarily willingly, or even knowingly. But economic advantage will pass to those who set the rules.

The demand for currency--while sporadic and unpredictable at any given moment--has no pre-defined limit. It is expressed as a function of the number of buyers or sellers who declare their intention to deal within a specified price range. Supply is also potentially unlimited, in an efficient marketplace--except when price movement is manipulated for reasons extraneous to natural market forces.

Inefficiencies in the pricing process prohibit the market from maintaining a natural equilibrium between supply and demand.

In an unregulated, global marketplace--such as the forex market--conventional market makers have been granted tacit permission to set prices, do deals, and dictate the protocols of the trading environment --- but NO LONGER.

 

A combination of three new realities has already moved the market:

  1. Technology - that facilitates broader market participation and the potential for greater efficiency;
  2. Diversity of participants - that broadens the trading base to include non-speculative interest, retail trading, and occasional as well as deeply committed professional traders; and
  3. The emergence of a new class of market makers - who reject antiquated processes that discriminate against traders, offer a new way of trading, and are paving the way for new efficiencies.

The implication of these new realities? Demand for new trading practices that not only address issues of fairness but have the power to remove the displacements between buyers and sellers to realize vastly improved market efficiency.

 

Why does a Forex Trader's Bill of Rights matter?

  1. To make the forex market fair.
  2. To realize prices created by natural market forces uncensored by the arbitrary intervention of middlemen.

The problem with forex pricing today is that there is no fixed point of reference. Bid and ask prices creep from point to point for no good reason. Leading to an overshooting effect--in either direction--that adds unnecessary risk, can diminish liquidity, and jeopardizes best execution.

For the forex market to be effective, it has to be efficient, transparent and fair. In the days of open-outcry trading, it was. Now modernization gives the illusion of efficiency, but the process is clouded by layers of self-interest that favor the select few and discriminate against all other traders.

In an unregulated marketplace, change can come only from the inside out--from the traders who put their assets at risk. Not from entrenched interests who purport to control how this business is done.

Exercising your rights as a trader will reduce your cost, eliminate much of the uncertainty and risk that need not be part of the process, and restore clarity and fairness to forex trading.

Understand your rights. Then insist on them.

 

The slippery slope of arbitrary pricing

The overshooting effect is the first step down a slippery slope. Prices move too far in one direction, and then they move too far again. The result is a massive disruption in pricing that makes trading very risky and much more difficult.

For traders, the absence of a fixed reference point undercuts the viability of a trading strategy: pricing snowballs away from market-driven valuation of a currency and toward prices that are arbitrary.

For the global economy, arbitrary pricing makes it impossible for the market to capture meaningful relationships among currencies. Massive pricing disruptions undercut central banks, ability to maintain a legitimate valuation for their currencies based on economic realities.

 
 
 

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Call to Action

Recognize that there is a difference between standard operating procedure and best execution.

Challenge your market maker: ask the questions that appear in the Bill of Rights.

If your market maker doesn't come up with satisfying answers, make your next trade with one who can.