Last week I posted No More “Hedging” for Forex TradersÂ to discuss the pending NFA rule which effectively ends the process of “hedging” in the forex marketÂ whereby a trader can hold open long and short positions in the same currency pair in the same account at one time without those positions being netted out by the broker. It’s a hot button item with traders on both side of the argument and the comment count for that post is now nearly at the 100 mark. I’m not going to continue that exchange here. What I want to do, though, is address something which has come out of it, namely a certain mindset I have seen quite a bit of recently.
I don’t know if it’s the current market environment as defined by the events of the past couple yearsÂ or whether it’s just a function of those with the point of view being the most vocal, but there is a definite sense of paranoia and conspiracy mongering among market participants these days which I find disturbing. It’s always been there, of course, but it seems to have been ratcheted up of late, no doubt fueled by the emotions events have generated. I’d like to address a couple of things I’ve seen recently.
The Big Players Want to Keep the Little Guy Down
One of the consistent themes of some of the commentors on that “hedging” postÂ is the view that the new rule is being put into place because this practice is giving the small traders and advantage and the big guys don’t like that. Guess what, folks?
The big players don’tÂ give a rat’s ass what the small traders do.
Especially in the forex market, the big fish and the little fish don’t even swim in the same pond for the most part. The size at which they trade means the big guys are trading against each other and with their customers doing multi-million dollar trades, not with the guy trading the mini account. The small account traders are trading with and against each other, which means if they are making money “hedging” or by any other techniques they are taking those gainsÂ from those losing money using whatever methods the losers are using.
And this applies to the other markets as well. Because of the size they operate at, the big players just simply don’t trade with and against the small traders. They need big positions, which generally means that have to buy them or sell them from other institutions. Little one’s and two’s just don’t cut it.
One of the other frequent complaints from the pro-hedge side is that these new NFA rules amount to government tyranny. They see it as theÂ regulators taking from them, in this case the right to trade they way they want. I can understand the argumentÂ that the gov’t shouldn’t be protecting me from myself. To my mind, that definitely isn’t what regulation should be for and there are some legitimate questionsÂ as to whether the hedgingÂ rule and prospective reductions inÂ permissible leverage really do anything beyond guarding traders from themselves.
That said, it is clearÂ regulation is required to ensure equal opportunity among participants. It’s too easy in the markets for the large players to dominate things to the detriment of the smaller ones. That doesn’t necessarily mean manipulation or abuse, but just a simple fact that free markets aren”t as efficient as some would suggest. I don’t mean to imply here that equal performance should be the objective of regulationÂ – just a level playing field for all players. Also, because the market cannot necessarily see the wider implications of what is going on, there needs to be some institution monitoring things and making sure abuses and systemic risks don’t develop.
The problem, though, is that emotionally driven decisions are generallyÂ lacking in forsight. We are seeing an awful lot of bad ideas being put forth these days because people are angry and scared.
“Look at their performance. They must be doing something shady.”
It would be foolish to belive that every trader and every institution is doing everything honestly and above board. At the same time, though, the vast majority of folks involved in the markets aren’t cheating people. They are just plugging along trying to do the best they can. To have the view that it’s otherwise, especially thinking that somehow these people are taking from you in some fashion, is nothing short of paranoia, which isn’t doing anyone any good.
The current environment where those who are actually successful come under suspicion is an ugly one to me. In any environment there are going to be those who come out ahead. Sometimes its by being a little better. Sometimes it’s just plain luck. Either way they should not be subjected to inuendo or outright witch hunts. Imagine how it must feel for someone to go from feeling pleased with what they’ve accomplished to having to constantly defend themselves from attact. For our society to be what it can be – in all aspects – we need to be encouraging those who demonstrate talent and the ability to produce results, not drag them down (unless we haveÂ real evidence that they have acted inappropriately).
The Complaints Reflecting the Complainer?
It occurs to me that in at least some cases the gripes we are hearing from traders about conspiracies or biases or whatever say more about the trader doing the complaining than those they are complaining about. It’s often a symptom of someone wanting to place blame for their own short-comings elsewhere. We see it all the time with traders accusing brokers of running their stops and things like that.
Also, there is a tendency in trading to feel like any little edge you think you have should be guarded and not shared. I think that tends to lead to an environment of distrust, which to me isn’t healthy. I think we could all do a lot better by cooperating rather than always feeling like we’re in competition.
OK. Enough ranting. Opinions and viewpoints are, as always, welcome.