Forex Insider Trading
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- Category: Politics
Are Central Banks Profiting On Inside Knowledge?
Early in the morning hours before the opening bell of Wall Street has rang; economic news data is usually released. This macroeconomic data, which is typically released around 5:30 a.m. PST, often will dictate how the markets will react on that given day. The macroeconomic data will often reveal how manufacturing if performing, unemployment is moving, core durable goods are being purchased and the overall health of the economy through measure of gross domestic product (GDP). Although these indicators push Wall Street and global stocks up or down on any given day, nothing will make the market react quicker than a move or bold statement from the Federal Reserve.
The Federal Reserve essentially oversees the financial system of the nation, focusing on economic growth. Also known on the street as the Fed, the private banking institution led by chairman Ben Bernanke controls monetary policy through adjustment of interest rates and money supply. However, the Federal Reserve has many more tools available to stimulate growth than simply those two options. Before the Federal Reserve announces a change in interest rates or before Bernanke makes his carefully crafted public statement, all of Wall Street sits idle. Wall Street brokers and investors cautiously sit on the sidelines and wait to see what moves the Fed will make, and as soon as the announcement is made; BOOM! Instant chaos is created through increased volume, buying and selling.
Although this sounds like a natural process of the open market, in reality there is nothing really free and open about it. This is because the Federal Reserve already knows how they are going to proceed hours if not days in advance. They know whether their decision(s) will spark a stock rally or bearish sell-off, information that can provide enormous financial gains. Essentially the Fed is the card dealer, and not only do they know what cards you are holding, but also they got to pick their own cards! The moves they make do not fall under “insider trading” regulations, and this is why many people believe the Fed is involved in foreign exchange (forex trading).
An Example Of Forex Inside Trading
Let us just say for some odd reason you were best friends with Ben Bernanke when growing up. The two of you enjoyed smoking cigars, discussing economic policy and playing golf. One Saturday on the golf course together, Bernanke says that the Fed will be raising the overnight lending interest rate from 2.50% to 3.00%. However, the kicker is that Wall Street is only factoring in a .25% hike; therefore the additional .25% will definitely send the market into frenzy. Understanding that increased interest rates result in a more favorable outcome for that countries’ currency, you decide to sell the Euro and buy the dollar at 1.2845 in anticipation of this monetary policy move. After the Fed makes its announcement come Monday morning, the Euro/USD pair drops from 1.2845 to 1.2676, and with the amount of money you invested in this one move you can now buy that beach house.
And the best part about the whole thing is (Besides your new beach house)…?
What you did was entirely LEGAL!
Manipulating Markets?
Many opponents of the Federal Reserve believe that the banking institution often manipulates the market, and this would not be the biggest surprise considering many other countries have a reputation for interfering with currency trading (China). As a friend once told me, when so much money is involved with something how can it not be rigged?
GPS Tracker Shop Wants Your Opinion
GPS fleet tracker editors working for our news and blog sections would like to know if you believe that the Federal Reserve intentionally manipulates the market for reasons other than to stimulate growth?
Should a private institution be in control of our nation’s currency and gold reserves?