Can Forex Market Be Manipulated?

A general notion about financial markets is that price manipulation is not possible when the market is very liquid. Instead, it is very easy to manipulate an illiquid market. This means that the foreign exchange market, where $5 trillion worth of currencies is traded every day, is not susceptible to manipulation. Such preconceived notions were blown away when several banks (Bank of America, Barclays, Citigroup, HSBC, JPMorgan, RBS, and UBS AG) were fined billions of dollars by the US and European regulators for price rigging between the periods December 2007 and January 2013. So, a retail trader may certainly wish to know whether the Forex market can be manipulated presently? Additionally, if the currency market can be manipulated, then how far will a retail trader be affected by the price manipulation? This guide will try to answer these questions.

Big players in the Forex market

Of $5 trillion total daily volume, about half is traded by the large banks. Nearly 80% of that volume is contributed by the ten biggest banks. For example, in 2017, Citi topped the list of major players in the interbank FX market with a share of 10.7%. JP Morgan followed closely with a market share of 10.3%. So, on any given day, we can expect Citi and JP Morgan to trade $500 billion worth of currencies. If both banks open opposite positions in a counter, then the net movement will be dependent on the positions taken by the rest of the big players. However, if the top players collude and place order in the same direction, then the market can be manipulated. This is what precisely happened between 2007 and 2013.

Big banks take fix orders from their clients (usually large multi-national corporations). Before we go further into this, let us explain what a fix means in the foreign exchange market. It is the reference or benchmark rate used by Forex dealers, multinational companies, and central banks to evaluate the behavior of a currency. It enables big companies and other market participants to assess their business or portfolio risk.

The fix is set based on two timed benchmark rates. The first one is the European Central Bank fix, which occurs every day at 14:15 CET. The second one is the World Markets/Reuters fix, which occurs every day at 16:00 UTC. During fix, the exchange rate is frozen. Until recently, the fix was based on currency deals that took place in a window 30 seconds before and 30 seconds after the designated time. This was used as the benchmark rate until the next day for various business activities.

When a bank executes a trade below (or above) the fix order (a large buy or sell order placed at fix rate) placed by a client, then the difference between the fix rate and the rate at which the order is completed will be pocketed as profit. So, there is a benefit if a bank can manipulate the fix rate. Imagine pushing the price upwards or downwards half-an-hour before the start of the fixing window. This would create a false impression among companies about the actual demand and supply. The banks can capitalize by selling to the client at a higher rate and buying the currency later at a lower rate from the market.

To achieve this, traders of major banks used private chat rooms and code words (“left hand side”, “right hand side”, etc.) to signal the direction of currency movement ahead of the fix time. The traders called themselves “the players”, “the 3 musketeers”, “1 team, 1 dream”, “a co-operative” and “the A-team.” This was routinely done for over a period of six years by major banks. The fix scandal is the largest Forex market manipulation scheme exposed until now. The incident confirms that the currency market can be manipulated.

Manipulation by brokers

A retail trader places orders with the hope that the Forex broker, who acts as a market maker, really offers a competitive bid/ask quote. A scam broker would often widen the spread and create artificial spikes so that a trader loses capital quickly. For a trader, who totally depends on the broker’s price feed, this would look as price tampering done by big players in the Forex market. This kind of manipulation is often seen in the currency market. It is quite easy for a retail broker to alter the price feed provided to clients.

By manipulating the price feed, a scam Forex broker will also resort to stop hunting. A scam broker will tune its software to create spikes near major support and resistance levels irrespective of what happens in the actual market. A trader who has placed a stop-loss order above (or below) a resistance (or support) level will be forced out of the trade when it should not be the case. Shady brokers often indulge in such price manipulation to rip away innocent traders.

Manipulation by central banks

The exchange rate of a currency reflects the economic stability of a country. A stable and strong exchange rate is generally preferred by investors across the globe. However, there may be situations where the exchange rate becomes too strong or weak according to the assessment made by the country's central bank. An extremely strong currency would affect exports and encourage imports, thereby leading to a trade deficit. Likewise, an extremely weak currency would increase the cost of imported goods, which may include raw materials as well. This would weaken the economy further. Therefore, in order to bring the exchange rate of a currency to a desired level, central banks manipulate the currencies by three ways. If the deviation is only small, strongly worded statements would shift the market’s sentiment towards the currency in favor of the central bank’s expectation. If that does not work out, then central bank’s usually hike or lower the prevailing interest rates.

A currency becomes more attractive to investors when there is a hike in interest rates and vice versa. Therefore, a hike in interest rates generally propels the exchange rate of a currency upwards. The value of a currency falls when a central bank slashes the benchmark interest rates. If these two methods do not work, then central banks intervene in the market and bring the exchange rate of a currency to the desired level. However, this would work only when there is economic stability in the country. The central bank of a country with a strong economy will have practically unlimited financial strength.

The Swiss National Bank is a classic example of this case. The Swiss National Bank held the exchange rate of the franc against the euro at or below 1.20 for a period of over three years ended 2015. Having failed to weaken the exchange rates through the implementation of negative interest rates, the SNB actively intervenes in the market to ensure the franc does not strengthen further. In such cases, a retail trader should avoid trading against the objective of the bank as it would end in a loss. If the economy is not strong, then the central bank will not be able to manipulate the currency as its buying power will be very much limited.


To prevent manipulation of the fix rates, the window time has already been increased to five minutes. This makes it difficult for even big players to manipulate the market. Region wise, central banks in some countries have started using a different methodology to arrive at reference rates for the domestic currency. For example, in India, the exchange rate for US dollar against Indian rupee is polled from the select list of contributing banks at a randomly chosen five minute window between 11:30 and 12:30 IST every weekday (excluding bank holidays in Mumbai). The new system came into existence from 2014. China has also changed the manner in which the yuan’s exchange rate is calculated. Therefore, manipulating the fix rate is no longer attractive, compared to the risk. The entire process of manipulating the fix rate was done in a confident manner because banks shared their order book with each other. If a huge order, which offsets the order placed by banks, is executed by a large individual trader or institution, then the whole plan will break apart quickly. Since the time window for calculating the fix rate has been increased, banks will be extremely hesitant to venture into such activities again.

We should also remember that banks changed the exchange rate of a currency pair by about 30 pips during the period of manipulation discussed here. So, a retail trader who is playing by the book will hardly lose anything. Since banks trade hundreds of millions of dollars, such a small difference in fix rate would make a huge difference in their net profits.

The manipulation done by brokers can be avoided by doing adequate background checks before opening a trading account. Furthermore, to avoid dealing with a Forex broker who is involved in stop hunting, a trader can use multiple demo accounts to compare exchange rates quoted during volatile hours or when major economic data is released. This would enable a trader to assess the Forex broker and also understand the spread offered. To judge a broker, traders can also compare the price shown by the company’s terminal with the price feed of Reuters and Bloomberg.


Big banks still have the capability to manipulate the foreign exchange market. However, the net impact on the exchange rate will be a matter of only 20-30 pips. Furthermore, regulators have plugged most of the loopholes to avoid a repeat of such incidents. Top banks have realized that they can no longer afford such misadventures. So, retail traders have nothing to worry about it. However, selecting a proper Forex broker is a must to avoid price manipulation that may cost dearly soon.

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