What Is Forex Rigging And How Does It Affect Currency Prices?

Forex rigging is not a new thing, with several global incidents having taken place over the years, costing consumers and businesses billions of pounds by manipulating foreign exchange rates.

So, what is Forex rigging and why should traders using instant funding prop firms be aware of the risks before parting with their money? Forex rigging explained

Forex rigging is when traders collude with each other to manipulate the foreign exchange rates, affecting millions of traders all around the world.

Typically, it involves the collusion of traders from major banks working together to plan trades that will distort the benchmark rates for their own benefit.

They secretly decide to submit very aggressive orders during very short windows, such as 30 seconds, which results in a huge shake-up of the market.

For instance, through a huge rush of buying or selling of orders, they can manipulate benchmark rates by pushing them higher or lower. How does a rush of orders affect the Forex market?Selling financial orders

Traders who want to manipulate trades for their own benefit could decide to sell orders en masse.

The impact of this is a significant decrease in asset price as it would suggest there is a greater supply than demand for the asset. Therefore, the price must be lowered to appeal to the potential buyers who remain.

It could also trigger other traders to sell their order, as it suggests there is a lack of confidence. Many consumers or businesses might think there is something negative about the asset, which is why it is being sold so readily.

In this case, it sends a ripple throughout the market, as other traders begin to sell to protect their investment before the price plummets further.

Of course, this results in a more substantial drop in the asset’s value. Consequently, it can cost sellers a huge amount of money. Buying financial orders

On the other hand, colluders could decide on buying a huge volume of orders. This would result in a rise in the asset’s value, as there is greater demand than supply.

This is because there are not enough sellers for the number of people who want to buy.

Similar to the case of selling a large number of orders, buying lots will send a message across the foreign exchange market that it is worth purchasing.

Therefore, more people will jump on the band wagon and buy the asset, even at an elevated price. This further increases its value and encourages buyers to spend over the odds on an order. A highly liquid market

In either case, Forex rigging temporarily leads to greater liquidity in the market, thanks to the surge of orders being placed.

While this liquidity is not likely to last for long, it still helps the traders manipulating the market to make a profit. This is because it triggers stop-loss sales or buys, enabling them to see where retail traders place their stop-loss orders. How do traders take part in Forex rigging?

This illegal trading activity is typically conducted by traders from large financial institutions who create cartels together, with the agenda of rigging the foreign exchange market.

They use chatrooms to discuss plans with each other on how to co-ordinate their trades for the same short window that will really shock the market.

The manipulators also often share confidential details about their clients and their large pending orders, as this will give each other information to predict how the market will move and how best to boost their own profit. Famous cases of forex rigging

There have been several cases of Forex rigging over the years, all resulting in huge fines for the banks and costing other traders billions in losses. Three-Way Banana Split Cartel

Barclays, the Royal Bank of Scotland (RBS), Citigroup and JP Morgan were known as the Three-Way Banana Split cartel when they joined together in 2019 to rig the foreign exchange market.

They were collectively fined €811,197,000 (£712,409,429) for communicating between December 18th 2007 and January 31st 2013 in three chatrooms known as Three-Way Banana Split, Two And A Half Men, and Only Marge about manipulating the market. Essex Express

The European Commission also issued a fine of €257,682,000 to the Essex Express cartel, which consisted of Barclays, RBS and MUFG Bank. They conducted their actions between December 14th 2009 and July 31st 2012.

UBS was involved in both scandals, but it was able to avoid a huge fine of €285 million, as it revealed the cartels to the European Commission. Lasting issues with Forex rigging

These are just two examples of Forex rigging, but there have been several more over the last few years.

The biggest problem of manipulating the market is that it undermines trust in the sector, causing traders to lose confidence when placing orders.

This could reduce the number of people who choose to trade in the foreign exchange market, as they might decide the risks of huge financial losses outweigh the benefits of potentially significant gains.

However, greater regulations in the market and more substantial individual accountability for those responsible would boost confidence for traders and make the market a more reliable investment opportunity.