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The Foreign Exchange Market Is Still Like The Wild Wild West According To One Hedge Fund Manager

Government regulators are cracking down on hedge funds, and hedge fund managers are not happy about it. Several of the wealthiest hedge fund managers in the world are facing a huge tax bill in 2017, thanks to a 2008 law that goes into effect in 2017. But Darren Jordon, a former hedge fund manager, and derivative trader, thinks the foreign exchange (FX) market is still filled with aggressive selling tactics. Jordon thinks regulators should be looking closer at the transactions that take place in the currency market.

The foreign exchange market doesn’t operate out of a brick and mortar location nor does it have a governing body that regulates buy and sell options. Traders are free to buy and sell currencies using a method that baffles some people and is as easy as eating pie for others. The interesting fact about the currency market is how quickly traders can money. Just a slight uptick in the value of a currency could mean millions of dollars to a trader, and millions can be earned in minutes.

The Dodd-Frank Act passed after the financial crisis in 2008 does not impact the foreign exchange market, according to businessinsider.com. The derivative market is changing because of that law, but the $5.1 trillion a year that is traded on the foreign currency exchange is not impacted at all. Mr. Jordon thinks the foreign exchange market is too big and powerful, and no one really knows or understands how to control it. The FX market seems to function on its own and the traders that make millions like it that way.

It’s not unusual for banks to use the FX market to increase their profit on transactions that entail currency exchange. Currency values change every hour, so banks can use the exchange rate up to an hour before or after another rate appears. Banks follow currency trends by the hour. If a currency is losing value on a certain day, banks will wait to make an exchange until a currency hits the lowest value for that day.

Investors that are active in the FX market know that political and economic changes in countries around the world change the value of different currencies, and they know which currencies to pair for a trade. They are not always right, but there are ways to make money even when currencies are losing value just like stocks. That’s one of the reasons Mr. Jordon thinks regulators should be looking at the FX market.