Professional Documents
Culture Documents
Adolfo Levano
Collin Hull
English 2010
March 12th, 2015
Regulating the Foreign Exchange Market
Government regulations in the United States are meant to increase
investor confidence, protect those who are in business, and pursue and
punish those who break the law, but when
government starts interfering with business
transactions it makes the market less efficient
and oversteps the purpose of government,
wasting taxpayer dollars. This government
intrusion is commonly seen in the foreign
Figure 1.1: Chart showing
the relative value of the
Euro vs. the U.S. Dollar
(Missionforex.com).
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225 million dollars after this event (Juliet Samuel). The United States
government reacted by adding additional regulations to the foreign
exchange
market
Figure 1.2: Graphic depicting 100:1
leverage for foreign currency trading
(Cash Back Forex).
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industry in the United States. The fact of the matter is that if a forex firm or a
financial institution goes bankrupt because of using or giving too much
leverage to their investors and did not take the necessary precautions, that
company should fail. That is the principle of supply and demand in
economics. Instead of government intervention, companies should develop
their own policies and procedures that would protect them from any type of
financial catastrophe.
Government intervention that exceeds basic fair play regulations leads
to a less efficient market. Richard Epstein from the University of Chicago
wrote an article called "The Dangers of "Investor Protection" in Securities
Markets. Epstein argues that based on principles of economics, regulations
actually add to the cost of doing business which makes the market less
efficient and less profitable. He also points out that regulations are often
followed by more regulations and people will expect and resist not just the
one regulation, but the others they expect will be following soon. Epstein
points out that because of supply and demand forces, regulating the foreign
exchange market in the United States will lead investors to trade with
companies outside of the United States and the United States economy
would miss out on financial opportunities (Epstein).
When the government starts regulating the amount of risk that
individuals can take, it moves beyond the powers that government was
intended for at the cost of tax payers. Ive been trading in the foreign
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Proposal
The role of government in the foreign exchange market should be
limited to ensuring a safe market by detecting fraud, whereas individuals and
brokerage firms should be responsible for assessing appropriate risks. The
problem is that the foreign exchange market has a lot of volatility. Currencies
are tied to current events and all across the world things are happening in
countries every day that affect their currencies. The government sees this
volatility and wants to avoid events such as what happened in January 2015,
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Foreign
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that is the natural consequence of their business decision and market forces
at work.
The problem of volatility in the forex market should be handled by
firms, investors, and economic principles. If firms manage risk they will be
prepared and ready to handle shifts in foreign exchange market and
investors can continue to make their own decisions and make money in an
efficient market.
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Works Cited
Alice Ross, Miles Johnson, and Philip Stafford. "Swiss franc jolts currency trading."
Finacial Times 15 January 2015.
Cash Back Forex. Leverage, Lots And Margin. n.d. 8 March 2015
<https://www.cashbackforex.com/en-us/school/tabid/426/ID/435512/leveragelots-and-margin>.
Constitution, U.S. "Preamble." 17 September 1787.
Epstein, Richard A. "The Dangers of "Investor Protection" in Securities Markets."
Texas Review of Law & Politics (2008): 411-424.
Interactive Brokers LLC. Margin. n.d. 9 March 205
<https://gdcdyn.interactivebrokers.com/en/index.php?
f=marginnew&p=overview1>.
Juliet Samuel, Tommy Stubbington, Chiara Albanese. "Forex Brokers Under Scrutiny
After Swiss Move." The Wall Street Journal (2015).
Ladi, Ashraf. Currency Trading and Intermarket Analysis: How to Profit from the
Shifting Currents in Global Markets. Hoboken, New Jersey: John Wiley & Sons
Inc., 2008.
Legatum Institute. "Values Matter for Prosperity." Principles of Prosperity: Social
Capital (2014): 29-30.
Milton, Adam. About Money. 2015. 8 March 2015
<http://daytrading.about.com/od/mtoo/g/MarginCall.htm>.
Missionforex.com. Web Crossover System. 2015. 16 February 2015.
School of Babypips. Leverage and Margin Explained. 2015. 7 March 2015
<http://www.babypips.com/school/undergraduate/senior-year/the-number-1cause-of-death-of-forex-traders/leverage-defined.html>.