The risk of currency trading is exaggerated by a lack of transparency at three stages:

1. pricing (why is the quote what it is?)
2. execution (why was my position closed at point A instead of point B or C?) and
3. after the fact of the trade (what were the real spreads and real prices while my position was alive?)

Just as market makers use their knowledge of traders' positions and habits, traders should have the information to characterize and judge the habits of their market makers. Today, that's barely possible. You take what they give you, and ‘better luck next time.’

So a major component of the cost of ownership is simple uncertainty—about your cost, what you left on the table, and the true validity of your trading strategy (which may have been derailed by the secret franchise of intermediaries).

The absence of accountability gives market makers permission to:

• give different prices for the same trade at the same time, hoping that no one will notice;
• claim that spreads don't matter and then hope traders won't connect the dots between spread cost and profitability;
• execute at prices that are in someone's best interest, but not necessarily yours.

Currency markets are unique in that individual traders are closer (than with other traded assets) to building the product and determining its value. Unlike coffee beans, currency has no presumptive value; the market forces that determine its worth have less to do with external factors such as the weather, local labor practices, or public taste. Everything else being equal, the value of currency is what the market will bid and ask for it.

Hard knowledge of real spreads and real prices is a direct measure of the market maker's efficiency. Use your power as a trader to demand to see how, when and where value is determined.

Until every market maker publishes these statistics, you're taking a huge leap of faith about best execution. And about how you are valued as a customer.

Next: The right to pay and receive interest
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