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!

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Exchange has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry. LMAX Exchange will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Exchange does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Exchange or any other FX, Spread Betting and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately. LMAX Exchange will clearly identify and mark any content it publishes or that is approved by LMAX Exchange. FX and CFDs are leveraged products that can result in losses exceeding your deposit. They are not suitable for everyone so please ensure you fully understand the risks involved. The information on this website is not directed at residents of the United States of America, Australia (we will only deal with Australian clients who are "wholesale clients" as defined under the Corporations Act 2001), Canada (although we may deal with Canadian residents who meet the "Permitted Client" criteria), Singapore or any other jurisdiction where FX trading and/or CFD trading is restricted or prohibited by local laws or regulations. LMAX Limited operates a multilateral trading facility. LMAX Limited is authorised and regulated by the Financial Conduct Authority (firm registration number 509778) and is a company registered in England and Wales (number 6505809). Our registered address is Yellow Building, 1A Nicholas Road, London, W11 4AN.