Insider trading forex market

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It may be possible, on a very special case. Insider trading is trading by using non-publicly available information. Let’s say you have several bestfriends who work as the typewriter of central banks speech texts in major countries like US, Euro, UK and Japan. Assuming your long-time friendship and trust with them, it would be possible for you to ask for earlier tip regarding monetary policy stance, which is a significant forex market mover. This kind of information will definitely give you an edge by just knowing them couple of minutes before the releases.

Not possible and not prosecutable are two very different things. As far as I know, it is not possible to characterize or prosecute a forex operation as insider trading, due to the mere fact that insider trading involves profiting from trading securities, and currencies are not considered securities per se. But, although nearly impossible to do, it is still possible, and I’ll give you all a very real example which happened yesterday.

The founders and major shareholders of brazilian company JBS were being investigated for corruption of government officials, and decided to collaborate in the investigations, gathering extremely sensitive information that could bring down the President (of the country, not the company)

Knowing that information was going to be released by the press, and knowing of its huge impact on the markets, they instructed the company to load up on USD few hours before the information went public - which happened later that day when markets were already closed. Next day when market opens, the USD immediately jumps over +8% on the BRL, and they make more than enough money to pay the fine they negotiated in their deal with the prosecution.

Indeed, it is not prosecutable, as currency trading is not covered by brazilian insider trading laws (or any country’s, I guess), but still, a clear case of insider trading on forex: making use of a very material and non-public information, to make a profit on the markets with an advantage over every other investor.

Insider trading is almost impossible in forex. It is one of the biggest markets in the world. It has a huge liquidity. Most of the trading is speculative .

Forex is controlled by mega banks. The biggest impacts have the following banks: the Federal Reserve System, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, the Bank of Canada and the Reserve Bank of Australia. If you have an amount of money like this parties, you can make inside trading.

usually employees of forex companies are not allowed to trade, but of course if they open account under brother? s name, they can trade.

Insider trading on forex.

The primary mantra of reaping profits from this currency market is to play on inevitable volatility. Constant price fluctuations offer traders a lucrative platform to make huge gains but with accuracy and precision. One such approach to this market is inside Forex trading or more popularly inside bar Forex trading. This strategy is gaining prominence in recent times and more and more traders are looking to accept it as a predominant trading approach.

This is a two bar or two candle price action strategies. The inside bar is smaller in size and within the range of high-low of its larger counterpart. In simpler words, higher bar stoops lower than its previous time and lower bar rises above its previous low. Relative position of such a price action varies. It can be at the top, bottom or around the middle.

The column to the inner portion of the inside bar is known as the mother bar. Every inside bar represents a duration of consolidation in market conditions. The general bars take a triangular shape when considered on a 1hour to 2 hour time frame.

Inside Forex Trading: Highs and Lows:

In preferable situations, an inside bar trades in the direction of the trend. However, on the broader picture, there are two existing forms of inside trading.

Continuation bars are simple representations of previous price action momentums prevailing in the market. They often gift investors with preferable breakout situations which run in line with the current market trend and stimulating momentum.

On the other hand, you can even trade inside bars as prospects of reversal signals . Insider trading Forex market on reversal strategies should only find prominence after complete hold on the currency market. This strategy depends a lot on the positional difference in candle sticks of market situations and their impact on a particular price action.

A classic entry point for an inside bar is through a buy or sell stop. The traditional stop loss placement in the Forex market is generally on opposite ends of the mother bar. However, one should note that these factors are classical approaches and their practical derivatives vary a lot from the ideal perspectives.

Moreover, one should note that professional insider trading on Forex is totally dependent on the technical analysis of market situations. This involves considering charts and approximating the price action graph of the market.

By technical analysis it doesn’t mean approximation of the present data but also precious historical data. Historical data enables traders to make a close study of previous situations and come out with definite strategies.

Employing the correct strategy in inside bar trading totally depends on the volume of currency you are trading. Whether you are a day trader or scalper, carry trader or a fan of Bollinger - your ultimate choice of approach will depend on the position of mother bar and is relative lower bars.

So, perform a proper study of inside Forex trading before you opt to invest in this currency market.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Top 6 Questions About Currency Trading.

Although forex is the largest financial market in the world, it is relatively unfamiliar terrain for retail traders. Until the popularization of internet trading a few years ago, FX was primarily the domain of large financial institutions, multinational corporations and secretive hedge funds. But times have changed, and individual investors are hungry for information on this fascinating market. Whether you are an FX novice or just need a refresher course on the basics of currency trading, read on to find the answers to the most frequently asked questions about the forex market.

1. How does the forex market differ from other markets?

Unlike stocks, futures or options, currency trading does not take place on a regulated exchange. It is not controlled by any central governing body, there are no clearing houses to guarantee the trades and there is no arbitration panel to adjudicate disputes. All members trade with each other based on credit agreements. Essentially, business in the largest, most liquid market in the world depends on nothing more than a metaphorical handshake.

At first glance, this ad-hoc arrangement must seem bewildering to investors who are used to structured exchanges such as the NYSE or CME. (To learn more, see Getting To Know Stock Exchanges .) However, this arrangement works exceedingly well in practice; because participants in FX must both compete and cooperate with each other, self regulation provides very effective control over the market. Furthermore, reputable retail FX dealers in the United States become members of the National Futures Association (NFA), and by doing so they agree to binding arbitration in the event of any dispute. Therefore, it is critical that any retail customer who contemplates trading currencies do so only through an NFA member firm.

The FX market is different from other markets in some other key ways that are sure to raise eyebrows. Think that the EUR/USD is going to spiral downward? Feel free to short the pair at will. There is no uptick rule in FX as there is in stocks. There are also no limits on the size of your position (as there are in futures); so, in theory, you could sell $100 billion worth of currency if you had the capital to do it. If your biggest Japanese client, who also happens to golf with the governor of the Bank of Japan tells you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like. No one will ever prosecute you for insider trading should your bet pay off. There is no such thing as insider trading in FX; in fact, European economic data, such as German employment figures, are often leaked days before they are officially released.

Before we leave you with the impression that FX is the Wild West of finance, we should note that this is the most liquid and fluid market in the world. It trades 24 hours a day, from 5 p. m. EST Sunday to 4 p. m. EST Friday, and it rarely has any gaps in price. Its sheer size and scope (from Asia to Europe to North America) makes the currency market the most accessible market in the world.

[ Since the forex market is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price movements. This makes it the perfect market for traders that use technical tools. If you want to learn more about technical analysis from one of the world's most widely followed technical analysts, check out Investopedia Academy's technical analysis course. ]

2. Where is the commission in forex trading?

Investors who trade stocks, futures or options typically use a broker, who acts as an agent in the transaction. The broker takes the order to an exchange and attempts to execute it as per the customer's instructions. For providing this service, the broker is paid a commission when the customer buys and sells the tradable instrument.

The FX market does not have commissions. Unlike exchange-based markets, FX is a principals-only market. FX firms are dealers, not brokers. This is a critical distinction that all investors must understand. Unlike brokers, dealers assume market risk by serving as a counterparty to the investor's trade. They do not charge commission; instead, they make their money through the bid-ask spread.

In FX, the investor cannot attempt to buy on the bid or sell at the offer like in exchange-based markets. On the other hand, once the price clears the cost of the spread, there are no additional fees or commissions. Every single penny gained is pure profit to the investor. Nevertheless, the fact that traders must always overcome the bid/ask spread makes scalping much more difficult in FX. (To learn more, see Scalping: Small Quick Profits Can Add Up .)

3. What is a pip?

Pip stands for "percentage in point" and is the smallest increment of trade in FX. In the FX market, prices are quoted to the fourth decimal point. For example, if a bar of soap in the drugstore was priced at $1.20, in the FX market the same bar of soap would be quoted at 1.2000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100 th of 1%. Among the major currencies, the only exception to that rule is the Japanese yen. One Japanese yen is now worth approximately US$0.01; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i. e. to 1/100 th of yen, as opposed to 1/1000 th with other major currencies).

4. What are you really selling or buying in the currency market?

The short answer is "nothing". The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader's account.

The primary reason the FX market exists is to facilitate the exchange of one currency into another for multinational corporations that need to trade currencies continually (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity). However, these day-to-day corporate needs comprise only about 20% of the market volume. Fully 80% of trades in the currency market are speculative in nature, put on by large financial institutions, multibillion dollar hedge funds and even individuals who want to express their opinions on the economic and geopolitical events of the day.

Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, she would, in essence, have exchanged euros for dollars and would now be "short" euros and "long" dollars. To better understand this dynamic, let's use a concrete example. If you went into an electronics store and purchased a computer for $1,000, what would you be doing? You would be exchanging your dollars for a computer. You would basically be "short" $1,000 and "long" one computer. The store would be "long" $1,000 but now "short" one computer in its inventory. The exact same principle applies to the FX market, except that no physical exchange takes place. While all transactions are simply computer entries, the consequences are no less real.

5. Which currencies are traded in the forex market?

Although some retail dealers trade exotic currencies such as the Thai baht or the Czech koruna, the majority trade the seven most liquid currency pairs in the world, which are the four "majors":

EUR/USD (euro/dollar) USD/JPY (dollar/Japanese yen) GBP/USD (British pound/dollar) USD/CHF (dollar/Swiss franc)

AUD/USD (Australian dollar/dollar) USD/CAD (dollar/Canadian dollar) NZD/USD (New Zealand dollar/dollar)

These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP), account for more than 95% of all speculative trading in FX. Given the small number of trading instruments – only 18 pairs and crosses are actively traded – the FX market is far more concentrated than the stock market. (To read more, check out Popular Forex Currencies .)

6. What is a currency carry trade?

Carry is the most popular trade in the currency market, practiced by both the largest hedge funds and the smallest retail speculators. The carry trade rests on the fact that every currency in the world has an interest rate attached to it. These short-term interest rates are set by the central banks of these countries: the Federal Reserve in the U. S., the Bank of Japan in Japan and the Bank of England in the U. K.

The idea behind the carry is quite straightforward. The trader goes long the currency with a high interest rate and finances that purchase with a currency with a low interest rate. For example, in 2005, one of the best pairings was the NZD/JPY cross. The New Zealand economy, spurred by huge commodity demand from China and a hot housing market, saw its rates rise to 7.25% and stay there, while Japanese rates remained at 0%. A trader going long the NZD/JPY could have harvested 725 basis points in yield alone. On a 10:1 leverage basis, the carry trade in NZD/JPY could have produced a 72.5% annual return from interest rate differentials, without any contribution from capital appreciation. Now you can understand why the carry trade is so popular!

But before you rush out and buy the next high-yield pair, be aware that when the carry trade is unwound, the declines can be rapid and severe. This process is known as carry trade liquidation and occurs when the majority of speculators decide that the carry trade may not have future potential. With every trader seeking to exit his or her position at once, bids disappear and the profits from interest rate differentials are not nearly enough to offset the capital losses. Anticipation is the key to success: the best time to position in the carry is at the beginning of the rate-tightening cycle, allowing the trader to ride the move as interest rate differentials increase. (To learn more about this type of trade, see Currency Carry Trades 101 .)

The Bottom Line.

Every discipline has its own jargon, and the currency market is no different. Here are some terms to know that will make you sound like a seasoned currency trader:

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