Welcome to the world of Jurassic FX
|In this ancient land the new ruler is the Global Code of Conduct where the last 2 great beasts of a dying breed seek to preserve their territory.
These 2 beasts go by the name of:
Prehedgeosaurus - otherwise known as Principle 11
Lastlookosaurus - otherwise known as Principle 17
Let’s examine Prehedgeosurus first.
He knows pre-hedging is it in itself a misnomer. But he must retain this legitimised front-running ability. Fast forward to Annex 1 with rose tinted examples of bygone days, when the hedge happens before the client trades and the client benefits.
Not a cold hard 21st century example of the market becoming aware of an order before a trade is executed and hitting every bidder or offer in sight so that if the client has more to do he's immediately off-side.
Give me the full amount says Prehedgeosaurus - you’ll be ok…
The problem with any good examples in Annex 1 is that the market the code discusses does indeed move at a Glacial pace, when the reality is that the pre-trade hedge has occurred in microseconds on one of the 50 something venues or streams available to Prehedgeosaurus.
To Prehedgeosaurus - ask your customer if they are ever happy with this behaviour and indeed whether they believe they are certain that no participant will trade against the principle of the code. I’ve asked them and they are happy that they can control their own trading and they don’t need the help of this tool so open to abuse.
So, it’s very simple – Pre-trade hedging has no place in a modern, digital, electronic marketplace.
Join me in Part 2 of Jurassic FX where we’ll be examining ‘Lastlookosaurus’. See you then!
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.