LIBOR and Forex Manipulation

The transparency of the United States stock markets is a large reason for their success. The SEC demands that companies provide timely and accurate reports of their finances, plans, and any potential problems. It turns out that this degree of transparency is not present in the world of banks and bank currency trading. This is the world of LIBOR and Forex manipulation. In order for there to be a viable currency market foreign currency exchange rates need to be based on true fundamentals and a true analysis of market sentiment. Thus the announcement of an investigation by the US Justice Department should concern Forex traders. According to the Justice Department there is an active and ongoing investigation of possible currency manipulation by several large primarily European banks.

What Is LIBOR?

How Did the Issue of LIBOR and Forex Manipulation get started? Of late banks such as Rabobank in Holland have agreed to billion dollar settlements in response to allegation that they contrived to manipulator the LIBOR rate. LIBOR is the expected interbank lending rate. Banks are polled to find out at what rate they expect to lend or borrow money to and from other banks. Numerous banks have paid large fines in the billion dollar range in order to settle charges that they offer untrue estimates in order to gain a profit.

How Do LIBOR and Forex Manipulation Come Together?

It appears to be the belief of investigators that banks may also have conspired to manipulate currency rates for their own profit. This is different from when a central bank buys or sells currency in order to affect the relative value of the Yen, USD, or British Pound. In those cases it is an issue of national policy and is fairly transparent. LIBOR and Forex manipulation have more to do with whether you or the bank make any money from changes of Forex currency rates.

How Does LIBOR and Forex Manipulation Affect Your Trading Profits?

The Forex market is a more than five trillion dollar a day trading entity centered on London, New York and Tokyo. Currency speculators as well as those who trade Forex options in order to hedge currency risk in international business are at risk of loss due to LIBOR and Forex manipulation. A Forex trader who trades within a narrow range can commonly gain repeated small profits and make a nice living. Now enter LIBOR and Forex manipulation and there goes the accuracy of both fundamental and technical analysis and there goes the accuracy and profitability of the trading range. This is not China, Japan, or Taiwan manipulating the market to support their currencies. As such it is not possible to guess how the banks will manipulate rates and will commonly lead to losses for both small and large traders. To the extent that the US Justice Department can clean up LIBOR and Forex manipulation it will likely lead to fairer and more profitable trading.