Freedom to trade in whichever direction you see fit at any time you see fit is a key feature of the forex market. For years the Securities and Exchange Commission (SEC) enforced a rule against short-selling stocks known as the uptick rule. The uptick rule attempted to prevent speculators from intentionally driving down the value of a stock with relentless short selling. Under the uptick rule a trader could only sell a stock if the current price was above the sale price, or on an “uptick.” Once a stock was falling, traders could not sell the stock again until the next uptick. Although the uptick rule was suspended in June 2007, there have been plenty of calls to reinstate it following the relentless stock market selling in 2008 and 2009. The forex market has no restrictions on trading. If you believe the euro will fall against the dollar, you can sell it without restrictions. Currency traders are able to move in and out of positions freely, without an uptick rule or other regulatory restrictions.
Having no restrictions on trading can also be a negative factor of the forex market. Since the market is unregulated and there are no restrictions on trading activity, the environment for manipulation exists. An extreme example of manipulation is the intervention by central banks. Intervention is a process of buying or selling tremendous amounts of currency to manipulate the exchange rate. The Bank of Japan has a history of intervening in the yen when its central bankers are displeased with the exchange rate. Manipulation can take many forms, from intervention to requoting a trader’s order to favor the dealer’s books. You should be aware of the risks involved with trading off-exchange in the spot market before you commit any live money to a trade. It’s called the Wild West of trading for good reason.
Having no restrictions on trading can also be a negative factor of the forex market. Since the market is unregulated and there are no restrictions on trading activity, the environment for manipulation exists. An extreme example of manipulation is the intervention by central banks. Intervention is a process of buying or selling tremendous amounts of currency to manipulate the exchange rate. The Bank of Japan has a history of intervening in the yen when its central bankers are displeased with the exchange rate. Manipulation can take many forms, from intervention to requoting a trader’s order to favor the dealer’s books. You should be aware of the risks involved with trading off-exchange in the spot market before you commit any live money to a trade. It’s called the Wild West of trading for good reason.
